Thursday, 5 June 2014

Bonus balls?

THE £1000-a-scalp “independence bonus” touted by the Yes camp is under fresh scrutiny today.
It was calculated on the basis that by year 15 of independence, Scottish tax revenue would have risen by £5bn, or roughly £1000 per person.
Leaving aside the fact that that’s your money going to the government not the other way round, the bonus is predicated on a steady rise in workplace productivity.
A 0.3% annual rise for 15 years should yield £2.4bn, or almost half the bonus pot, according to the Scottish Government.
But the First Minister’s Council of Economic Advisers has just reported that productivity trends are “an area of uncertainty”.
So should Alex Salmond be so confident of a productivity rise?
The Scottish Government says only short-term productivity is uncertain and that independence would produce permanent long-term change.
But if it’s not possible to forecast short-term productivity change with certainty, how much reliance can you put on 15-year forecast, especially as long-term forecasts are notoriously harder to get right than short-term ones?
The opposition parties say something's amiss.
Here’s a longer version of the story in today’s Herald

Tom Gordon

THE workplace productivity behind Alex Salmond’s promise of a £1000 independence bonus for every Scot remains “an area of uncertainty”, his own economic experts have warned.

The assessment is contained in the latest annual report by the chair of the First Minister’s Council of Economic Advisers (CEA).

The Government last night said only short-term productivity was uncertain, whereas independence could produce permanent change, but opposition parties said Mr Salmond had been caught peddling “fantasy”. 

The First Minister said last week that higher productivity, higher employment and higher immigration after a Yes vote would result in an extra £5billion in tax revenues after 15 years, an “independence bonus” worth £1000 per person.
Almost half the £5bn increase was attributed to a 0.3% rise in annual productivity growth.
The SNP government stated: “A 0.3 percentage point increase in our long run productivity growth rate, which will narrow some of the gap with our competitors, could see tax revenues increase by £2.4bn a year by 2029-30.”
The government suggested productivity could be raised using “an industrial strategy to rebalance the economy and diversify Scotland’s industrial base”, better infrastructure, and a more efficient tax regime which helped Scottish businesses invest and innovate.
However the CEA chair’s report indicated productivity trends could not be taken for granted.
It said: “Looking ahead, in the short term, even as the recovery develops at an aggregate
level, specific or localised issues may still appear. Moreover, the outlook for the labour market and earnings, both in Scotland and the UK, depends on future productivity trends, which remain an area of uncertainty.”
From p43 of the CEA chair's second annual report
However it added the economic outlook was stronger than in early 2013, and the Scottish economy was expected to move beyond 2008 pre-recession levels of output during 2014.
The prospect of greater productivity was also cited defensively by SNP ministers this week when the Institute for Fiscal Studies said costly policies on childcare and pensions would require tax hikes or cuts under independence.
Labour finance spokesman Iain Gray said: “The SNP’s prospectus for a separate Scotland depends on a sudden, magical, and inexplicable increase in productivity following a yes vote.
“Every day we see independent analysts telling us these figures do not add up. Now even the First Minister’s own advisers are telling him a sudden leap in productivity is just fantasy.
“This report shows the scale of the challenge a separate Scotland would face in helping to bridge the gulf between SNP spending promises and revenue.
“There is no plan, no strategy, no vision and no idea about how to close the productivity gap.”
Conservative finance spokesman Gavin Brown added: “This is yet more evidence that the Scottish Government’s fiscal paper last week was based on extremely optimistic assumptions, vain hope and the crossing of fingers.
“What is particularly damaging about this conclusion is that it comes from the Scottish Government’s own trusted advisers.
“There can be no claims of a conspiracy here - when even they are telling the SNP to be more cautious, it’s time for the Yes camp to listen.”
A Scottish Government spokeswoman said: “The two references to productivity are different. The text quoted from the Chair’s Report relates to short-term changes in the Scottish and UK labour markets and its links to how productivity is adjusting in the light of the recession and recovery. The First Minister was referring to permanent improvements in Scotland’s productivity growth rate, which can be supported by access to the economic levers available under independence.
“With independence we will be able to take control of economic levers and have the powers to grow our own economy, including supporting increases in productivity rates. With the powers of independence we could generate over £5 billion a year of extra revenues within 15 years, without increasing taxes.”

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