This is the big chance for Scotland: get the tax reform right, and Scotland can lead the way in Europe by demonstrating how to reduce the avoidable death rates in locations like Drumchapel.
An Expert Advisory Group on Tax on Land and Property has been established to advise the Scottish Land Commission and shape the recommendations that it will put to Ministers in late 2021.
“The Group will use the Land and property taxation in Scotland: Initial scoping of options for reform report as a starting point to work with the Land Commission on pragmatic and ambitious options for reforming tax on land and property in Scotland to help address inequalities and create a fairer, more resilient Scotland where everyone benefits from the use, management and ownership of land.”
The SLRG strongly supports these aims and has offered this note from its own economists. We hope its contents will assist the Group in assessing the various taxes proposed and in forming its final advice to the SLC – which will later be placed before Scottish ministers…
How to compare taxes?
Government economists are often tasked with assessing the effects of potential changes to tax types and rates. In presenting their findings they describe best, median and worst case scenarios, listing both the integral (e.g. likely changes in people’s behaviour) and external factors (e.g. a pandemic) they have identified that will influence the outcomes of the policy changes.
Such computations are hard enough when the subject is a single small change of say 1% to an Income Tax threshold or rate. When considering the whole competing gamut of revenue streams that could be applied to land and property – the task of the Group – the full scale and challenge of the job may be realised.
SLRG economists, Professor Roger Sandilands, Dr Duncan Pickard and Fred Harrison offer here a ready method to cut straight to the Group’s goal: finding and proposing the revenue stream(s) that will “help address inequalities and create a fairer, more resilient Scotland where everyone benefits from the use, management and ownership of land.”
What, then, is the method to efficiently and quickly (the task must be concluded within months) open to the Group to compare, weigh, assess and draw conclusions about each tax proposed on land and property?
The exercise required is the assessment of the excess burden of each tax. Such an approach will provide an objective comparison of the likely good or bad effects of each competing idea in the final report. Not only would such a comparison supply objective findings, but it would also offer a report of unprecedented clarity, logic and transparency to both ministers and voters.
The excess burden of a tax is its intrinsic effect on the economy and society. The effect could be positive or negative. Many effects are negative, giving rise to the alternative name for excess burdens: deadweight losses. With the exception of Pigouvian taxes, the Advisory Group should task itself with identifying and prescribing revenue streams with small or negative excess burdens.
Providing absolute assessments of the excess burden of each tax is not practical within the time and resources given to the Advisory Group. This task should nonetheless be proposed as the first priority for the relevant ScotGov finance departments with the resources to make the full computations. For its own purposes – making tax comparisons – the Group must in the first instance, and in forming its findings, make use of the work of economists providing data on estimated excess burdens. Much academic work has been done on this, offering clear comparisons between the good/bad social and economic effects of all kinds of taxes. Certainly all of those that will be under consideration by the Group. Such estimates offer more than sufficient academic evidence to justify the Group choosing to propose the taxes for Scotland that have been shown to inflict the lowest deadweight losses, none at all or better still, negative deadweight losses (social and economic gains).
Negative deadweight losses are better described as the incentive effects of a revenue stream boosting employment and trade through optimising the use of land, increasing employment and minimising inequality. We will be providing the Group with separate guidance on land and property revenue streams of this type that are immediately available to Holyrood legislators in 2021.
Social excess burdens
Taxes also influence behaviours that impact communities, life chances, health and human life expectancy: these social excess burdens must be considered by an Expert Advisory Group as well as the more obvious economic ones measured by GDP.
Accepting the need to consider social excess burdens, the Group would come to conclusions with the potential to transform Scotland into a beacon of hope in Europe and beyond: because the exercise would be one that takes into account mortality attributable to each tax option under consideration.
For example, it is estimated that annually, across Europe, about 50,000 people die prematurely because of the under-pricing of carbon dioxide and particulate emissions (externalities that are rewarded by the structure of current tax policies). Tax choices, historically, privileged the technologies that failed to contain/capture the waste from internal combustion engines, leaving air pollution at levels above WHO guidelines. The death count rises to nearly 125,000 people every year, who would remain alive but for the pollution levels above the lowest measured concentrations in the 1,000 cities that were studied. Ill-health and mortality are issues that need to be factored into an informed report on the taxes best suited for application to land and property.
Ella Kissi-Debrah represents the victims of flawed tax policies – dead in 2013 at the age of 9. Her misfortune was to live 30 metres from the traffic traversing London’s South Circular road. A coroner ruled that she died from acute respiratory failure, severe asthma and air pollution. In her daily walks to school she was exposed to nitrogen dioxide and particulate matter (PM) pollution at levels that exceeded World Health Organization (WHO) guidelines.
Such examples confirm epidemiologist Dr. George Miller’s conclusion that an estimated 50,000 annual UK excess deaths are attributable to “the method government uses to raise revenue”. The searching question is whether politicians can be trusted with the welfare of the people. Tax policy therefore needs to be framed with reference to its effects beyond the “fairness and efficiency” criteria traditionally employed.
The responsibility laid upon such groups as the Expert Advisory Group on Tax on Land and Property is onerous. Its findings must be transparent and unequivocally geared to its goal to “help address inequalities and create a fairer, more resilient Scotland where everyone benefits from the use, management and ownership of land.” Making a comparison between the excess burdens of each tax – both economic and social – is the way to demonstrate and guarantee that the Group’s tax recommendations are based on the most comprehensive assessment, meet its stated goals, and conform to the requirements of good governance.
This exercise presents an opportunity to make proposals to ministers that would tend to equalise people’s life chances in Scotland, such as by reducing the loss of up to a dozen years of life for residents in neighbourhoods such as Drumchapel and by reducing mounting Scottish drug deaths attributable to social dislocation.