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'Holyrood has helped the recovery ... but we can do more with independence

Last week the Scottish Government's Chief Economist published his latest State of the Economy report, highlighting the ongoing positive signs of recovery in the Scottish economy over the past year.

There are strong grounds for optimism, and there are signals that the Scottish economy is likely to strengthen further in the next twelve months, with recent output growth performance indicating that the economy as a whole will return to pre-recession levels in 2014.

Over the last year, we've seen improvements across a range of economic indicators, with the economy expanding for four consecutive quarters, further increases in employment, and unemployment and economic inactivity continuing to fall.

This performance shows that the policies of the Scottish Government to create jobs and boost the economy are making progress.

Even with the limited powers over the economy at our disposal, the ability to take distinctive decisions that suit our circumstances and reflect our choices have improved economic performance in Scotland.

The narrowing of an historic gap in performance with the UK across a range of indicators by successive Scottish administrations is a clear demonstration of this.

At the time of devolution, Scotland had a lower employment rate, and a higher unemployment rate, compared to the UK average. The most recent labour market statistics show that our employment rate is now higher, and our unemployment rate lower, than the UK average.

In 1999 Scotland's onshore output per head was the 5th highest of the 12 countries and regions of the UK. In 2012, Scotland was ranked 3rd - behind only London and the South East.

These strong improvements in economic performance since 1999 show what can be achieved with limited economic self-determination.

Much has been achieved already and 2014 will bring further opportunities. This Government will focus on priorities for strengthening Scotland's economy and to go further through the opportunities of independence to meet Scotland's needs strengthen the public finances, and to rebalance the economy.

Last month, the Scottish Government launched Scotland's Future the most detailed and comprehensive blueprint for an independent country ever published. A week earlier, we set out a complementary detailed paper on economic policy choices in an independent Scotland, which illustrated the wide range of opportunities to build a more competitive, resilient and fairer economy.

The paper set out four areas of priority. The first is rebalancing the economy to promote innovation and productivity. Even relatively small improvements in productivity can have significant effects on economic performance and prosperity. For example, Scottish Government analysis estimates that boosting labour productivity by just 1 per cent could raise employment in Scotland by over 21,000 over the long-term.

An independent Scottish Government would have the ability to draw on the full spectrum of tax, regulatory and public spending levers to establish an industrial strategy focused on diversifying Scotland's industrial base by promoting manufacturing, innovation and productivity.

The second theme is boosting participation in the labour market.

Independence would allow future Scottish governments to establish truly transformational policy initiatives to increase labour market participation.

With independence we would be able to deliver more efficient and joined-up employability, welfare and skills.

We could better align skills and training programmes, making sure we have the right people with right skills to match our new economic opportunities. Tax and welfare systems which are a crucial consideration in motivating people out of inactivity and into work could be better aligned to support people into work.

And, by ensuring that the benefits of increased participation - in terms of higher tax receipts and lower welfare payments - stay in Scotland we would be able to implement a truly transformational approach to childcare.

As an illustration, growing our four largest tax receipts by 1 per cent and reducing core welfare spending by 1 per cent through higher rates of employment would benefit the public finances by around £350 million. Under the Scotland Act Scotland will only receive £45 million of this directly.

The sort of transformation that we can only imagine under devolution.

With independence that money stays in Scotland and can be used to help pay for the expansion of childcare.

The third priority is taxation.

The Institute for Fiscal Studies and our Fiscal Commission have highlighted the potential for an independent Scotland to re-design the current costly and complex UK tax system. An efficient tax system could be a major international competitive advantage for Scottish businesses and support investment, jobs and growth.

This makes sense not only for business but also for government. Our intention is to reduce compliance costs, streamline reliefs and help to reduce tax avoidance, with the ambition of yielding a target revenue gain of £250 million a year by the end of the first term of Parliament.

There would also be the potential to carefully target tax incentives in order to encourage certain types of activity.

For example, boosting international connectivity through initiatives such as cutting Air Passenger Duty; encouraging investment through capital allowances, and supporting small businesses through initiatives such as National Insurance Employment Allowances for small businesses are all practical propositions available under independence.

The final theme is internationalisation.

Independence will allow us to integrate our industrial and business strategy with trade, foreign policy and international engagement in order to provide a real opportunity to take advantage of the status of a newly independent Scotland on the global stage to promote investment and trade.

The impact of an improvement in Scotland's export performance on the wider economy could be significant.

For example, Scottish Government analysis estimates that a 50% increase in the value of Scottish exports could boost output by around £5 billion and create over 100,000 jobs in the long-term.

Independence will create the opportunity to build an economy that takes advantage of Scotland's unique strengths and size.

We recognise that independence offers not just the power to vary individual policies, but the ability to design a consistent approach to supporting key sectors and to implement a fully co-ordinated approach to economic policy. That is the prize in the independence debate.

With independence future Scottish governments could create a genuinely appropriate set of complementary policies - whether in relation to taxation, innovation, labour market regulation or industrial policy - to secure stronger levels of economic growth and job creation from which all the people of Scotland could benefit.

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