TAX hikes may not be enough to deal with the Scottish Government’s budget shortfall, the chair of the Scottish Fiscal Commission has warned. 

The comments from Professor Graeme Roy come after Finance Secretary Shona Robison set out the government’s Medium Term Fiscal Strategy on Thursday, telling MSPs  “tough choices” were needed. 

She said resource spending requirements were on course to exceed funding by £1 billion in 2024-25, rising to £1.9 billion by 2027-28.

By law, the Scottish Government must balance its budget. 

READ MORE: Robison hints at cuts as she moves to tackle spending gap

Ms Robsison that while she did not “hold all the levers necessary to make the Scottish tax system work in the most effective way,” she did have options “around who and what to tax, and by how much.” 

SFC figures showed that there were 510,500 higher rate taxpayers in 2023-24, up from 405,500 in 2021-22 – an increase of just over 25%.

Higher rate tax in Scotland is currently set at 42p, with the charge presently levied on annual earnings of between £43,663 and £125,140.

There have been calls from the Greens and the STUC for the ministers to look at a new tax rate targetting those earning between £75,000 and £125,000.

Speaking to journalists, Professor Roy said: “It’s important to note that funding is going up, but that the commitments that are being made are rising faster than the funding that is available.

"If you just look at it from a purely mechanistic point of view and the mechanical and numerical point of view, differences of £1bn, £2bn, whether that be in three, four, five years down the line, there are limits on how much you can essentially raise revenues in order to pay for that given the range of powers that the Scottish Government have available.

"There are limits about how much any government can go in order to raise revenues to pay for higher spending. If you change rates, how might that feed through to the potential performance of the economy and in the tax base?

"It’ll be interesting to see what the government do over the coming months, particularly with this new tax advisory group, what the relative balance is on changing rates and making sure that the base of the economy, the tax base continues to grow.”

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The Fraser of Allander Institute economic think tank was blunter still. In an assessment of the financial strategy published on Friday morning, they said making changes to the higher and top rates of income tax was “unlikely to be able to yield large amounts of revenue”.

They said increasing the whole of the higher rate tax band by 2p would raise just £176 million.

"What this means in practice is that difficult decisions are going to have to be made about spending”.