Friday's Scotsman includes a remarkably blinkered critique of the Scotland Bill and Holyrood’s opposition to the lack of tax-raising powers incorporated therein with particular emphasis to Corporation Tax by Graham Gudgin.
Dr. Gudgin is certainly something of an expert in Stormont affairs and is held in some high regard for that but his assertions that what is good for Northern Ireland will be detrimental for Scotland are based on some rather tenuous premises that do not stand up to anything like close scrutiny and finally fall into the category of Unionism for its own sake. That may be all well and good working on an agenda pushed by Peter Robinson and the DUP but that is nothing like the same dynamic that drives the SNP’s desire for fiscal powers.
He takes the view that for every 1% cut in the rate there would be a loss of 2,000 public sector jobs. He also takes the view that this reduction would create new private sector jobs at a net rate of 500 per year per 1% but doubts where the funding income gap might be closed in the “long run” with no vision as to what that term really means but the implicit threat that the public sector jobs would go very quickly indeed. His further assertion that new jobs would be created “mainly in new non-Scottish companies” misses the entire point of the argument for a reduced Corporation Tax rate — the entire proposal is intended to attract business into Scotland as well as easing the burden on existing companies. He deliberately couches the upside in woolly uncertainties whilst emphatically delineating the downside in explicit certainties.
Subjective stuff if ever there was. There's more than one way to skin a cat and surely Dr Gudgin knows that.
There are varying degrees of what a tax rate can mean in terms of how profits are treated. Taking a straight cut off the top of all profit is the accepted way of doing things in this country and it seems that no other formula is worthy of discussion. However there are practical examples in Europe of subtle adjustments which are fundamentally pro-business and offer different opportunities.
For instance holding companies can be permitted to be the vessels for intellectual property as long as they do not engage in commercial activity — the company holds copyright, trademark etc on behalf of commercial companies and as it is not commercially active it pays no tax. There is no coincidence here that so much copyright is lodged in Luxembourg where this is very big business indeed. So that is a scenario where a specific type of company benefits from an exemption.
The Estonian government introduced a 0% Corporate Tax rate over a decade ago. This sounds like madness at first hearing but the reality is a 0% rate on undistributed profit. If profit is kept in the business or, even better, reinvested then the rate is 0%. If the profit is distributed as dividend, bonus or whatever then it becomes liable for taxation at regular state rates which are set on an unambiguous flat tariff. When the tax regime was introduced the nae-sayers were flabbergasted that the Corporate Tax take went UP in the first year compared to the previous system.
The Wall Street Journal hailed the bravery and farsightedness of the Estonian government in having the guts to do something that almost every "expert" said could not work. There has been virtually no talk in the intervening years of changing the 0% system as it has attracted foreign investors and created jobs.
A Scottish Corporation Tax based on a similar model to that of Estonia — I say similar not identical — would mark out this land as being open for business and pragmatic enough to realise that industry needs to be encouraged to grow, not flogged to death by punitive taxation. Ally that model with an enticement to lodge intellectual property in Scotland through a specific new type of holding company and all of a sudden we are firmly in the game. Maybe not quite an entrepôt but certainly a modern pro-business jurisdiction.
Dr. Gudgin’s belief that new jobs will be “mainly in new non-Scottish companies” is a complete red herring as Scotland is already a cosmopolitan modern community with transnational employers well established for decades and cherished by all players in the political spectrum.
If we are to be led to believe that foreigners coming into Scotland to create jobs for Scottish workers is suddenly a bad thing then, quite frankly, the Unionist arguments have just plumbed new depths of contempt by trying to legitimise this economic pseudo-science.
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