In the economic plan which he has produced as part of his pitch for the leadership of Plaid Cymru, Adam Price has put forward a number of ideas for change. The media coverage has concentrated, perhaps unfairly, on just one of those, his proposals on taxation, with the headline suggestion of a significant cut in income tax. I find it a little strange that a proposal for an overall increase in total taxation has been seen by some as a tax-cutting proposal (the proposed new land tax would raise more income than the proposed tax cuts), but it is an interesting proposal nevertheless.
Thereâ€™s a long history to the idea of a land value tax, which is the cornerstone of the proposed changes. Itâ€™s an idea which has been espoused in the past by a range of economists. There are some practical problems (one of the reasons why it is not widely implemented across the world) which need to be resolved at a detailed level, but in principle itâ€™s an idea Iâ€™d support.
As suggested earlier, moving tax from income to land doesnâ€™t per se reduce the total tax take from the economy, but it does, to an extent at least, change who pays the tax. When it comes to those who own the land on which their house is built, whether income tax or land tax is more favourable to them as individuals depends on the detail and the rates at which taxes are set; thereâ€™s no inherent reason why one form of taxation would leave them better off than the other. But the key point is that, whilst some individuals would be better off and some worse off, overall the suggested plan (given the extra 1p on income tax to fund education) is for an increase in tax, albeit distributed rather differently. And given the problems facing Wales, I wouldnâ€™t oppose an overall increase in taxation anyway.
In that context, I was more than a little surprised to see the claim being made by Adam that â€œâ€¦cutting the basic income tax rate even to 11% will provide a major economic boost to the Welsh economy through increased spendingâ€�. This strikes me as a very strange claim, since any boost to the economy generated by a decrease in one tax is likely to be more than matched by a hit to the economy generated by an increase in another. The total amount of money in non-state hands which is available for spending actually reduces under these proposals.
Even supposing that there were to be a net increase in the money available for people, rather than the government, to spend, an assumption that people spending it rather than the government doing so boosts the economy is open to challenge at the very least. If the government spends Â£1 billion pounds, that provides exactly the same boost to the economy as if millions of individuals each spend an extra Â£1 billion between them; at macro-economic level, there is no difference between the impact of private and public spend. The goods and services being purchased are essentially the same, regardless of who purchases them. And actually, it might be worse than that; the theory that more money to spend = more spending only really applies in a theoretical world. In the real world, people who have gone into debt or run down their savings may prefer to pay down that debt or top up their savings rather than spend. And even those who do spend may opt for an extra foreign holiday, providing a boost to someone elseâ€™s economy rather than Walesâ€™. Such factors mean that, in practice, government spending may well provide a bigger boost to the economy than private spending under a particular set of circumstances. And it would certainly be on different priorities.
I can understand a political desire to present the proposal as a tax cut for working people, but that doesnâ€™t strike me as an entirely honest presentation. I simply donâ€™t accept the premise that leaving people with more money in their pockets after tax can, of itself, provide an economic boost; the other changes have to be taken into account as well. Thereâ€™s a danger that it provokes a political debate about who can keep taxes lowest rather than about who should be paying which taxes and on what basis. Taking a basically sound idea and presenting it in a way which plays to the Tory agenda of low income taxes doesnâ€™t look particularly radical to me and misses an opportunity to debate who should be paying which taxes in order to raise the revenue required to provide government services.