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Why there is so much discontent about tax 20/10/2006


Alf Young casts doubt on the link between economic performance and taxation (Herald, 20th October). His grounds are that there seems to be little correlation between countriesí growth rates and how high or complex their taxes are. But this is a bit like saying that the minimum wage doesnít cause job losses because the unemployment rate happens to be falling. In truth you canít judge the impact of any one factor on a statistic which is affected by myriad others.

In the case of taxation, one of the most important other factors is how the tax money is spent. At one extreme, if it simply returned to taxpayers to spend as they choose, it causes little damage Ė itís not so different from not taxing in the first place. At the other, if the proceeds are paid to people to dig holes and fill them up again, taxation becomes a millstone.

In Britain we are closer to the latter extreme than most OECD countries, and that is partly why the argument about tax levels has raged so prominently over the last three decades. If we were to reform our public sector so that tax money was spent in line with consumer preferences, the problem would not be so acute.

This need not be controversial. Most continental European systems have market based health sectors and independent schooling systems which function efficiently while ensuring access for all. In England, New Labour has made a stuttering start in trying to replicate this. If only Scotlandís politicians would follow best practice from around the world, public sector productivity would improve dramatically and we could relax on tax (a bit).
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