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Common Weal: indy Scotland can be richer, more progressive nation without raising income tax rates

Scotland can be a richer, fairer, more progressive nation without having to increase income tax rates, according to a major new report from the Common Weal project.

The state could collect a third more income tax and transform public services if politicians only had the courage to fix the current system, it says.

The report argues that by helping more people into work and investing to create higher skilled, better paid jobs, Scotland could collect an extra £4 billion in income tax each year in a decade of Holyrood getting full tax powers, without raising tax rates.

By effectively creating a larger middle class, the changes would reduce income inequality and cut the nation's benefits bill, it claims.

Published jointly this week by the Jimmy Reid Foundation and Compass Scotland, the paper is intended to form the bedrock of the Common Weal concept, which advocates cherry-picking proven policies from the Nordic countries to alter Scotland's economy and create a better, more equitable society.

It argues that independence -or full taxation powers known as fiscal autonomy - would let ?¨Scotland break with a dysfunctional UK economy characterised by low pay for millions and millionaire ?¨salaries for an elite.

"A climate has been carefully ?¨cultivated in Britain which treats talk of taxation as a dangerous and taboo subject," it says. "Certain interest groups and parts of the media have been particularly keen to make the subject so toxic that people are afraid to discuss it."

A key problem is the "massively unhealthy" assumption that taxes should only get lower, despite the harm to public services.

To kickstart the change, the paper recommends short-term wealth taxes on the rich and taxes on whisky and renewable energy. Barely £400 million (or 2%) of the £25bn in annual worldwide whisky sales come from Scotland and, according to one study, a £1 production tax ?¨on each bottle could generate an extra £1bn.

The new monies would be used to realign Scotland's labour market through job creation and training, leading to a shift from the low-pay, low-skill jobs that trap thousands in poverty.

As more workers enter the £25,000-£35,000 wage bracket, and employment rates rise, there would be a rise in the overall tax take.

The increased tax would be reinvested in public services, industry and infrastructure to stimulate the jobs market, as well as cutting spending on the tax credits and benefits which top up low pay.

This could "raise tax revenues effectively and painlessly", without hiking tax rates, it says.

The report arrives amid growing support for the Common Weal concept among the SNP hierarchy, who see it as an attractive sales pitch for independence.

SNP MSPs will today be briefed on the idea by Jimmy Reid Foundation director Robin McAlpine. Titled Investing in the Good Society: a Tax Plan for the Common Weal, the new paper says Nordic countries benefit from collecting more of their GDP in tax than the UK. But that does not mean their citizens suffer from low pay, as the extra tax is invested in public services and state lending to industry which fosters better paid, higher skill jobs.

The paper includes computer modelling which suggests that if the Scottish employment rate were raised from the 69.5% seen in 2010-11 to 76.2% by 2017-18, the income tax take would rise by £2.2bn to £12.9bn, up 18% in real terms.

If employment then rose to 80% by ?¨2025-26, the tax take would rise by £4.1bn, 35% up on 2010-11 in real terms, without a change to tax rates.

The paper also says tax should be radically simplified as part of measures to cut down on perfectly legal, if morally reprehensible, tax evasion by corporations and the rich. Other ideas include taxing multinationals on a percentage of their global income according to their turnover in Scotland.

Richard Murphy, director of Tax Research UK, said Scotland had a chance to build a tax system which was good for its economy. "If it's wise Scotland will penalise low pay and encourage fair rewards. Do this and Scotland could have a broad tax base, strong tax revenues and low tax rates all at the same time.

"If Scotland is to take control of its destiny it's a challenge its politicians must embrace now, together, to build a common future for the people of Scotland as a whole."

Howard Reed, director of consultancy firm Landman Economics, said British politics stifled discussion of tax. "The UK's problem with tax is that we have a hopelessly low-pay economy. If the public could be exposed to a half-decent debate about tax, the whole nature of political debate would be utterly changed.

"Tax take is what counts and the way to increase tax take is to make people richer. If only we put people first in a high-wage economy our tax problems would fix themselves."

Tory MSP Murdo Fraser said: "This paper sounds like classic voodoo economics; the economic version of turning base metals into gold. There will not be many serious thinkers who would see such plans as credible or a platform for the finances of a future Scotland."

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