Salmond looks up in Euskadi

Alex Salmond has just paid an official visit to Euskadi, and has in particular singled out the tax arrangements that the Basque Autonomous Community has with Spain as a model which could be applied to Scotland.

Basque tax system sets example for Scotland

Scottish First Minister Alex Salmond with the President of Iberdrola in Bilbao

Scottish First Minister, Alex Salmond, during an official visit to the Basque Country on Monday, took the opportunity to call for a similar tax system in Scotland to that established in the Autonomous Community. The First Minister believes the system has enabled the Basque Country to maintain an economic situation which is currently the most favorable in the Spanish state.

EITB, 13 September 2010

It is certainly true that the Basque Autonomous Community is the wealthiest parts of Spain in terms of GDP per capita, and the headline news there today is that its exports have risen 34% on the year. The BAC is responsible for setting its own taxes, which it retains, and then negotiates a settlement with the Spanish State for services that are provided centrally. In this respect it has greater autonomy that Catalunya.

I read an interesting article about the parallels between Euskadi and Scotland on Joan McAlpine's blog here:

     From the ashes of Guernica: what we can learn from the Basques

This is a short extract which describes the fiscal arrangements.

The Basque country, which enjoys the widest and deepest autonomy of all the Spanish regions, is an attractive model for Scotland.

Holyrood politicians send all taxes south then squabble over how to cut up a shrinking cake returned by Westminster. The Basques set, raise and collect all their own taxes, then negotiate an annual “cupo” with Madrid for central services, usually around 12%.

You might think anyone keen to extend Scotland’s economic powers should avoid discussions of an Iberian nature. Spain is in meltdown, with Europe’s third worst deficit after Greece and Ireland. Austerity measures so far announced are unpopular. Savings banks are collapsing. The federal socialist government want to restructure the labour market, to end infamous “Spanish practices”. Red flags will be raised in Bilbao as well, But while the Basque country is not immune to the global crisis, it is better placed to survive. The area outperforms Spain on nearly every indicator. Its GDP per capita is 34% higher and it has half the rate of unemployment. The credit agency Standard and Poor’s gives the Basques a better rating than the central government – because of its low debt burden, wealthy, diverse economy and “special system framework granting the region control over most of its tax revenues”. That’s a recommendation – CBI bosses take note.

The Basque arrangement is similar to the system devised by the economists Andrew Hughes-Hallett and Drew Scott, which forms the basis of the Campaign for Fiscal Responsibility. Business leaders like Jim McColl and Tom Hunter and trade unionists such as Campbell Christie have backed the campaign, believing that fiscal powers offer Scotland its only option of growing the economy. The tax regime would be designed to meet specific, local, needs. The Basques for example, set a lower corporation tax than the rest of Spain and have borrowed to upgrade their infrastructure.

The two things I would particularly like to highlight are lower corporate taxation and the ability to borrow money to invest in infrastructure. These are two essential elements of what I, and Plaid Cymru, see as the main powers necessary to reverse the economic decline of Wales caused by decades of over-centralization in the UK economy.

And although there are parallels between Euskadi and Scotland which I certainly wouldn't want to detract from, I think there are even more similarities between the Basques and the Welsh. The Basque Autonomous Community is very slightly smaller than Wales has a similar heavy industrial heritage. The language situation is also very similar.

It is remarkable how their degree of autonomy has led to such prosperity, and provides an example of what we in Wales could do if we had control of our own economy.

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Anonymous said...

Interesting post. What might a joined-up agenda for fiscal and financial autonomy for economic renewal in Wales look like (following a desirable momentum-creating "yes" vote in next year's referendum)?

I guess the key elements might be:

1) The implementation of the Holtham recommendations (fair funding, income tax varying powers,as well a the recommendation to investigate and negotiate powers over corporation tax and natural resource taxes).

2) The negotiated transfer of authority for the Crown Estate in Wales to the Welsh Government and Assembly, and the establishment of an appropriate formula for transferring (or at least sharing) the revenues accrued from Wales's potentially vast coastal and marine renewable energy resources for the benefit of Wales (also the devolution of planning authority for major power generation projects- as advocated powerfully by one speaker at this year's Plaid conference). Is the devolution of the Crown Estate now official Plaid policy?

3) The establishment/ development of a network of Welsh-based mutual financial institutions (both local and national)to facilitate sustainable business support, filling the gap left by the move away from the "grants culture" and the continuing unwillingness of the major banks to lend. A Welsh stock exchange would also be part of this agenda. Was there much discussion of such ideas at the Plaid conference?

I'd love to see a joined-up proposal of this nature from Plaid, linking as it does building the nation with the bread-and-butter issues of improving people's lives. It would offer a powerful agenda going into the next Assembly elections, offering a credible alternative to Labour's narrow and negative "politics of blame".

Cambria Politico said...

This is a fascinating and intelligent article and I entirely agree that the Basque model should be studied for the Welsh context. It fits with the long term contention that nothing can be done with true self-governance or independence until there is control over the money. This is tax money and also the money flow through banks and credit unions.

Georgist said...

Once again there's an obsession with having borrowing powers for Wales - governments' capacity to borrow rather than print money themselves (leaving the printing to the banks-on which they get interest) is a significant contributory factor to the depression we're now in. Capital expenditure could, and should, be paid for by a tax on the windfall that that expenditure creates for landowners.

The natural resource tax to which Anonymous(above) and Holtham refer is just an incredibly inefficient version of a proper Land Value Tax.

Why, oh why, do you insist on borrowing from banks and paying interest to them when you could simply either print the money yourself (which is how the banks would get hold of the money to give it to you anyway) or, even better, just get those who benefit from the expenditure to pay for it?

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