THE Scottish Government’s GERS document estimates the contribution of revenue raised in Scotland towards the goods and services provided for the benefit of Scotland.
The key issue this year revolves around the demise of North Sea oil as a contributor to Scottish finances.
As a result, Scotland’s overall fiscal balance has worsened in the past two years and a large deficit remains.
Furthermore, relative to the UK, Scotland’s fiscal balance is now around £1,600 per head higher than the UK’s and likely to remain so.
This position is much worse than was forecast in the Scottish Government’s White Paper on independence back in November 2013.
Back then, it was stated that, compared to the UK, Scotland: contributes more tax per head; has stronger public finances; and has much higher GDP per head, whereas now the reverse is true in most cases.
In the event of a second referendum on independence how might such a relatively poor fiscal position be dealt with in a revised White Paper?
The ‘dream’ scenario would be for an independent Scotland’s economy to grow more quickly and so for revenues to catch up over time.
READ MORE: Oil slump deepens Scotland's economic black hole but Brexit complicates independence issue
However, that seems overly optimistic and a more realistic, but still positive, scenario would be for Scotland to make a smooth economic transition that still left it with a necessary step change in funding in order to reach a fiscal target of a balanced current (i.e. excluding spending on capital investment) budget, through some combination of higher taxes (e.g. on income, VAT and whisky) and lower spending (e.g. on defence).
This might be achievable over a parliamentary term (5 years), according to the SNP MP George Kerevan, but it would still involve some pain and making difficult choices.
Such changes may not leave Scotland a very different country to the one we know now and similar in many ways to a number of other EU countries.
Unfortunately no proponent of independence has been candid enough so far to outline the details of exactly what this ‘transition’ would involve.
We may have to wait until the next White Paper to find out.
Prof McLaren writes for the Scottish Trends economics website
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