Economic growth won’t be as simple as just raising taxes

pic

The main dilemma accountancy firms are talking about now is whether it’s more profitable for the country to increase the tax rates or the amount of finances taken from taxes. This is an important question, as now the UK needs to be in its best shape to welcome more investment, as Brexit gives its consequences.

The variant of taxing the rich companies and make as much money from them as possible doesn’t lose popularity. But will this option work forever or it’s only a short-term benefit? The answer is going to the latter, as this isn’t a way out when the country can’t fund some of the vital services.

A good way out seems to be balancing individual taxes with corporation. However, the main assumption is that with the raise of the tax percentage the income will also raise. This is not always the case. There is the Laffer curve, which correlates the link between rates of taxation and levels of government revenue. It postulates that there is a point where increasing taxation results in lower revenues. Of course, nobody is sure where this point is at any time and it will change, but ever-higher tax rates are not the answer.

There is also the issue of maintaining attractiveness after the Brexit vote. Frightening wealthy individuals and companies away with talk of punitive tax rates won’t work.

Relocation is easy for the wealthy and there are many countries happy to use low rates of personal and corporate tax to tempt them. The rich may be drawn to invest in Scotland, but unless they have a strong connection they may follow the most favourable trading conditions. High taxes, a government hostile to business and an inflexible workforce are factors that can make businesses up sticks and head for more favourable shores.

Yet lower personal and corporate tax rates alone will not bring investment. There needs to be a hard look at what makes Scotland work and what works in Scotland; access to markets and skilled workers, an approachable political environment that is committed to long-term relationships and a high quality of life. Tax rates are less important than revenue generated and policymakers need to examine the whole package to ensure they do all they can to expand Scotland’s revenues.

Leave a Reply