Yesterday's Sunday Herald ran another scare story, this time about the EU not allowing an independent Scotland to set a low rate of corporation tax.
Salmond in 'fantasy land' over tax plans, says former adviser
Alex Salmond's vision of an independent Scotland attracting global investors with ultra-low corporation tax has been dismissed as "a fantasy" by one of his former economic advisers. Professor John Kay, who served on the First Minister's Council of Economic Advisers during the last Parliament, said the idea was a "non-starter" because the rest of the EU would block it.
He said it was inconceivable that other EU states, who want to end Ireland's 12.5% rate and who are now moving towards common tax rates, would allow Scotland to copy Ireland's example.
"No-one is going to allow Scotland to have a low corporation tax. That's just a fantasy," he said. "If Scotland's an independent country, the EU will not allow it. It's a non-starter. What has happened on corporation tax is Ireland has this low rate and everyone around the EU is determined that that should never happen again.
"So Scotland would have to negotiate EU membership – it wouldn't be difficult, everyone's going to have Scotland as a member – but you can be absolutely sure that one of the conditions is that you don't have a 12.5% corporation tax rate. Since a fuss has been made in Scotland about doing that, it would be inevitable that you would get the determination on the part of the Europeans that you do not have it."
It might well be true that certain countries in the EU don't like Ireland's rate of corporate tax, but the idea that they would be forced to change it is one of the myths about the EU that seems to have sprung up in recent years. Ireland's rate of 12.5% is by no means the lowest rate in the EU. No comparison is completely accurate because there is a whole range of other taxes on business (for example non-domestic rates and employers' NI contributions in the UK) but here are the lowest ... and highest:
Hungary ... 10.0%
Cyprus ... 10.0%
Bulgaria ... 10.0%
Ireland ... 12.5%
Italy ... 31.4%
Germany ... 15.8% federal + 14.4% - 17.5% regional = 30.2% - 33.3%
France ... 33.3%
Belgium ... 34.0%
Malta ... 35.0%
This table shows why the idea of "common tax rates" in the EU is highly unlikely. The average corporate tax rate in the EU is somewhere between 20 and 25%. So if the low tax countries are to be forced to increase their rates to get them closer to the average, then the high tax countries will similarly be required to lower them. But among the very highest taxing countries are France, Germany and Italy ... three of the EU giants. Does anyone think that they'll be persuaded to lower their rates just so that there can be an EU average?
A more likely scenario would be for EU member states to agree minimum rates of tax. The lowest standard rate of VAT that any EU member state can charge is 15%, although there can be lower rates (or a zero rate) applied to certain types of goods and services. So it might well be possible to in future set a minimum rate of corporate tax too. But if so, it would have to apply to every member, not just one particular member.
It's also interesting to note that there are two EU member states that have different rates of corporate taxation for different geographical regions. The German model has a roughly half-and-half split between a fixed rate of federal corporate tax and a variable component according to the region. And the four Basque provinces are free to set their own rate of corporate tax, which at 28% is currently 2% below that of Spain. So there is no reason for the UK as it currently exists not to allow Northern Ireland, Scotland and indeed Wales to be able to set our own rates of corporation tax in order to act as a counterbalance to the increasing inequality in wealth between the south east corner of England and everywhere else in the UK.
Well, no reason apart from the intransigence of successive governments at Westminster, that is, who obviously don't seem to regard this over-centralization as a problem.