Stability required from any new Welsh tax system
FROM 2019, the Welsh Government will gain new powers to introduce new taxes in devolved areas. This is in addition to powers over stamp duty and landfill tax from April 2018 and income tax from 2019.
This is the first time in 800 years that Wales will gain tax varying powers. The Welsh Government is emerging on the global stage as Europe’s newest tax system. It is both an awesome opportunity and responsibility for the fledgling Welsh Government.
If you were designing a new tax system where would you begin? What values would you want it to encourage and discourage? How much importance do you place on stability versus the chance to be different?
The Welsh Government’s newly published Tax Policy Framework gives us an insight into their emerging thinking. The CBI has been working with officials for several years to give a business perspective on the new Welsh tax system.
We have made clear to government that business requires stability and certainty from day one. The first experience business people have with the Welsh tax system will greatly shape their views.
From reading the framework, I am sure the Welsh Government gets the need to give business confidence. The framework makes clear the tax system will be “simple, clear, progressive and stable, with legislative and administrative clarity and efficiency”.
The good news is that our engagement with the Welsh Government has reassured us greatly. It is clear officials and politicians get the need for a strong and steady start.
Indeed, the Finance Minister Mark Drakeford made clear his commitment to certainty when he addressed the audience at the CBI – Barclays economic breakfast recently in Cardiff.
We are pleased the Welsh Government has also committed to core tax principles.
They are as follows: “Welsh taxes should: raise revenue to fund public services as fairly as possible; deliver Welsh Government policy objectives, in particular supporting jobs and growth; be clear, stable and simple; be developed through collaboration and involvement; and contribute directly to the Well Being of Future Generations Act goal of creating a more equal Wales.”
These are solid principles and the success of the new regime will depend on the Welsh Government’s ability to remain committed to these principles in good times and bad.
The only note of caution I would make is to underline the fact that the sheer complexities of establish- ing a tax regime should not be overlooked, and while politicians may be most attracted to the ‘bells and whistles’ of the new system, they should first make sure they can keep the lights on.
It is clear too that the Tax Policy Framework hints at more longterm “progressive” ambitions. For example, the Welsh Government states it plans to “assess how the collection of taxes managed in Wales can better and more fairly meet the needs of taxpayers and public services”.
While there is a commitment not to raise income tax in this Assembly term, my reading of the framework leads me to believe it hints at an emerging political narrative that connects the level of taxes people and businesses pay to the quality of devolved public services they get.
For many in business that is not the whole picture. The efficiency and effectiveness of how public services are run also impacts the quality of services and not just the level of money a public service receives.
Whatever the next few years bring, it is clear that Welsh political parties will enter the next election in 2021 on a radically different footing.
With responsibility for raising 20% of the revenue the Welsh Government spends, what money is left in Welsh people’s pockets at the end of each month will be influenced not just by the decisions of politicians in Westminster but of decisions of politicians in Cardiff Bay.
The National Assembly will no longer just react to taxation decisions taken by the Chancellor but will have a greater say in shaping both the process and policies that underpin the taxes leveraged on the people of Wales.
One theory is this should lead to more accountable politics and government, with the electorate voting for the party that has the approach to taxation that most reflects their priorities and principles.
We may well see some parties pledging to cut taxes while others pledge to raise them.
We will wait and see but having to collect the money they spend should certaintly concentrate minds in government. No longer will devolved government funding be certain but it will be tied to the strength of the economy and its performance.
There is an old saying in America, “what’s the difference between death and taxes? Congress doesn’t meet every year to make death worse.”
Let us hope the Welsh Government will chart a more optimistic path.
Ian Price is director of CBI Wales.