Tick, Tick, Tax?

Nick Ramsay MS speculates whether or not Welsh Government will flex their taxation muscles, in order to fund Coivd-19 recovery.

As Governments across the World consider how best to repair the damage caused by Covid-19 and still have keep their own economies afloat, focus has started shifting onto the politics of taxation and whether Governments will take the difficult decision to increase income tax. 

The issue of taxation is hot – and not. It’s something that Governments hate to talk about and understandably so.

Who wants to be the bearer of bad news and tell its people “Sorry things are tough, sorry we’re limiting your freedoms…and oh by the way, sorry but we need to pinch a bit more of your hard-earned cash?”

It’s not really the narrative you want to push, particularly if you’ve got an election in a little under a year’s time. 

And yet the long the Covid-19 crisis continues, the more the Welsh Government will need to consider the politics of taxation and how it could be used to fund public services and support businesses. 

It doesn’t take a finance expert to know that post Covid-19, the Welsh economy will simply have less money flowing through it and so it begs the question how exactly is the Welsh Government going to pay for public services and keep the economy going?

Now, they could look to Westminster and wait. It often seems to be the general financial position of the Welsh Government and maybe they’ll wait with their fingers crossed in the hope that the Prime Minister makes that call, hike up taxes and then the Welsh Government can jump on the back of it and exercise their own taxation levers.

Most people in Wales will see the dip in the pay packets and assume that it was the UK Government that took it – if the Welsh Government are quiet enough and if the media say nothing, they can just blame it all on Westminster?

Or will the Welsh Government take the opportunity to flex its own muscles and raise the level of income tax in Wales?

A lot will depend on the further divergence of policy between the UK Government and the Welsh Government over the coming months. If the First Minister wants to continue with lockdown restrictions and the UK Government moves further out of them, then something will have to give.

The Welsh Government could look overseas at some of the changes to taxation being adopted by other countries too. For example, New Zealand has pushed ahead with tax reforms to benefit their economy. 

New Zealand’s tax policy response to Covid-19 includes measures such as a tax loss carry-back regime to help businesses offset a loss in a particular tax year against a profit in a previous year.

They’ve also introduced measures in their Covid-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 which included reintroducing depreciation deductions for non-residential buildings. 

This measure is intended to support investment in the recovery phase, thereby supporting  productivity – and by reducing tax for building owners, this would hopefully help increase cash flow and stimulate the economy.

Sexy? Maybe Not – but a significant nod to businesses in New Zealand? It certainly is. 

There are some pretty interesting tax measures around Research and Development too and I do genuinely hope the Welsh Government’s ears are listening.

The Welsh Government’s tax powers are new – and so it’s vitally important that they take onboard international developments and see if there’s a genuine merit for their introduction in Wales. 

But the crux of the matter is this. Somehow and in some way, the Welsh Government will have to look at its approach to taxation and look at it seriously. If Wales continues to pave its own way out of the Covid-19 crisis, then someone is going to have to pay for it. 

The clock is ticking – the question now is how long will the Welsh Government allow its clock to tick, tick, tick before it taxes? And how will the Welsh Government use its newly acquired tax powers to pay for Wales’ Covid and post-Covid recovery?

Nick Ramsay is the MS for Monmouth and Welsh Conservative Spokesperson for Finance in the Welsh Parliament.

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