Sunday, March 25, 2007

Analysis of SNP's economic policy ignores the potential for growth

This is an OPINION peace I had in the Scotsman in April 2005. It is still correct.
Professor Arthur Midwinter is misinformed in his comments on the SNP’s policy of cutting corporation tax to kick-start economic growth (your report, 29 March). The case that all the SNP’s policies, specifically independence and the use of oil revenues, could cost £10 billion is arguable either way; but it is unreasonable to use this figure in an argument about cutting corporation tax.

As he states later, since our total corporation tax receipts are £2.1 billion, a cut of one-third would be £700 million. Scottish Enterprise already costs us £500 million, for less obvious effect, and Holyrood has regularly had an underspend of £500 million. This is, therefore, clearly affordable.

The argument about independence is a different issue. It is quite possible the SNP could become the leading party without persuading the electorate to secede.

He is also in error in saying Ireland’s growth preceded the tax cut. Ireland decided on reform in 1989, including cutting business taxes, and instituted it within a year. They immediately came out of stagflation.

It is true that in face of this success they repeatedly cut corporation tax to its present level of 12.5 per cent (and that the rate of growth further increased), which is what he is referring to in saying that some tax cuts came after success. But the initial cut came first - the relationship between reform and success is so close that it is not reasonable to deny that the one led to the other.

Independence and European Union membership, sometimes credited with responsibility for Ireland’s achievement, came decades earlier, and immigration (actually the return of generations of emigrants), not surprisingly, followed growth.

A point he misses is that the lesson the SNP has learned from Ireland is twofold. Not just cutting business taxes, but also cutting regulation.

Turning round our economy cannot be done purely by writing a cheque, but it can be done by a government willing to make the effort, which includes writing that cheque and backing it. Since each 1 per cent increase in growth means an extra £1 billion of national wealth each and every year, the gains to be made exceed the cost many times over.

I do not believe Scottish voters are too stupid or too shortsighted to understand this.


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