Thursday, 4 September 2008

Alex Salmond attempts to sweep tax under the carpet

Alex Salmond, leader of the SNP is playing find the lady, or in this case find the tax, with his plan to switch from Council Tax to a Local Income Tax (LIT).

What this will do is threefold

1. It will consolidate the burden upon the working and middle classes and allow the rich to reduce their exposure. It might have the benefit of relieving those who are not poor enough to get support for Council Tax today, but the money must come from somewhere, so I doubt it. The poor who get relief from Council Tax will either pay LIT, so their costs go UP or they are to keep getting refunds or relief. If the lower income brackets are unaffected while the top can bypass it, logically it means that the 3% will hit the middle and upper middle hardest. As usual*.

2. It will be a blunt instrument, finally centralising revenue collection and distribution at Hollyrood, for each geography will have a disparity between income tax collected and cost of provision. I suspect areas with many wealthy residents will need less social housing, less police, less damage to council property, lower social services and lower benefits payments per head. How the horse-trading will occur is not clear. If anything it might result in calling a spade a spade and realising that the vast majority of council spending is controlled and dictated by the centre anyway. Alex Salmond might inadvertently be doing the right thing.

3. The true cost will be obscured and local accountability for same will be broken. A flat 3% income tax will finally turn local council fiscal accountability from the residents to Hollyrood. Local people will not be able to use their vote in local elections to influence spending while at the same time it will be "lost" in the income tax system, drawn out slowly like blood by a bloodsucking parasite you do not see in plain view. Some might say this is a good thing, as locals who pay nothing will not be voting in those who promise to spend ever greater sums of other peoples' money on them. However, I do not think this problem will be solved, it will just be placed in another bucket of slops along with a raft of new problems that this proposal creates.

At least this will bring the whole issue of local authority financing back into the arena. Approximately 80% of local spending is financed centrally. He who pays the piper should call the tune. Either collect more locally and have local control and accountability OR collect it centrally and RUN it centrally, without any funding passing through the sticky fingers at a local level - the prime example of this would be Education.

Alex Salmond has not so much upset the applecart as kicked over a full bucket of night soil. The mess will be for all to see, the stink unavoidable, yet it might mean we get a chance to sort out the plumbing once and for all, though I doubt it.

* Can someone explain to me how a middle class person consumes more street lighting, parks or road sweeping? There is a good chance that they do not consume as much educational resources as a group, for some pay twice yet consume once outside the state system.

1 comment:

Mark Wadsworth said...

Yup. I have come to similar conclusions, but coming at it from a different angle. I'd go the other way and have Land Value Tax.

Of course rich people in nice areas don't 'consume' more street lighting etc than poor areas. But the 'value' of what they are getting is more (maybe simply because the social housing is built elsewhere). So they're paying more for the privilege of NOT having social housing, and that money can be used to subsidise the council housing elsewhere.

The same applies to everything that we as a society need - be it social housing, landfill sites, prisons, power stations, sewage treatment etc, but which nobody wants near them.

And, as any free market economist knows, it is better to pay for the 'value' of something (which may be more or less than the cost) than it is to be forced to pay for the cost of something, regardless of whether that item of expense brings you any benefit (which is what income tax, or Council Tax for that matter, do).

The value of bobbies on the beat or refuse collection far outweighs the cost. OTOH, 5-a-day advisors and so on cost a lot of money but add no value whatsoever.

So with LVT, local councils would cut back on racial awareness coordinators and either return that as LVT-cuts, OR they'd focus on the few areas of spending that are best done collectively (police, refuse, street lighting etc).