I note that Doug Maughan (Letters, February 16) seems more concerned with semantics than the substantive points I have raised in my letters. In my original letter I specifically said that the US was at the top of the GDP per capita league; I did not say it was at number one in the per capita GDP league. Furthermore, at what exact position the US is at the top of the GDP league is irrelevant to my point which is that a small degree of growth underperformance on a year-by-year basis can cumulate, or compound, into very large disparities in the longer term. I note that this point is not disputed: Scotland was (number one?) at the top of the GDP per capita stakes at the end of the nineteenth century and is now around 22 in the per capita GDP league stakes.
It was Mr Maughan, not I, who first noted that Luxembourg was currently number one in the GDP per capita league. I have pointed out that the dominant reason for that result is the ability of Luxembourg to use differential VAT rates. I note that finding is not disputed. I daresay Aberdeen football club would achieve a higher rating in a league which used a per supporter formulation, but I fail to see how that illuminates the fiscal devolution debate.
In response to Mr Maughan's other questions: I do, indeed, realise that the Scottish Parliament has limited income-tax-raising powers and I have argued elsewhere that it should have complete discretion in its ability to vary income tax. Why neither the previous administration, nor the present adminstration, has used the limited powers it has to hand is a question that should be asked of them. In the context of the debate about the devolution of fiscal powers, I have also argued that the key tax that has to be devolved is corporation tax and, no, I don't believe that Holyrood should raise the rate of income tax to fund the proposed increased spending on research and development.
Academic research, published in a peer-reviewed journal, demonstrates unambiguously that a 10% cut in corporation tax produces at least a 1% increase in a country's GDP growth rate. I am unaware of this result being challenged or overturned. The implications of the policies I have advocated are an increase in the total revenue available to the Scottish Government, not a decrease, and there is therefore no need to cut public services. Indeed, such an outcome would allow the government to increase its real spend on public services and reduce income tax, if it so chose. A win-win situation if ever there was one. In sum, allowing the Scottish Government access to the relevant tax levers would be a key element in restoring Scotland to its rightful place at the top of the world GDP per capita league.
Ronald MacDonald,
University of Glasgow.
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