Let’s talk about tax, Cymru — Matthew Hexter

Calls from Alun Davies AM for an extra 1p on the pound in income tax for the NHS as well as the consultation by the Welsh Government on new Welsh taxes shows that Wales is starting to have the conversation about using our new tax raising powers. However, would new taxes cause Welsh Labour electoral difficulty? And will taxes such as the Sunbed Levy or Tourism tax or even a hypothecated tax for the NHS be sufficiently transformative for the Welsh economy, especially as austerity starts to bite?

People don’t actually mind paying more tax, so long as they know what it’s going towards. Popular support for higher taxes and increased public spending is stronger than it has been for more than a decade and perhaps hypothecated taxes are politically prudent way to increase taxes even if that is not necessarily the case economically. An extra 1p on the pound for the NHS could be a widely popular move. A similar levy for more Members of the Welsh Assembly, no matter how necessary would unlikely be so popular. Similarly, the social care levy proposed by the Welsh Government, whereby we all pay throughout our lives for our social care is a fairer and less politically challenging revenue raising system than ‘The dementia tax’ proposed by the Conservatives in last year’s general election.

Hypothecated taxes are not without their issues economically. Linking spending to uncertain revenue streams has the potential to flood services with money during economic good times but starve them of cash during times of economic weakness, arguably when they need it most. Though if they are the means by which people could hold politicians accountable for their spending decisions and also make people feel favourable towards taxation then they should be encouraged.

However, it is questionable whether taxes such as the ones proposed by the Welsh Government or the hypothecated taxes proposed by Alun Davies are radical enough to raise sufficient revenue to protect our public services. Lacking the big hitting revenue raisers such as corporation and capital gains tax and only collecting 10p on the pound (plus whatever additional rate is potentially added) of income tax, The Welsh Government needs to think outside the box when it comes to revenue raising.

Noticeably in the Bevan Foundation’s report ‘Tax for good’ most of the ideas for new taxes focused on ideas such as Sugar and Sunbeds taxes or taxes on takeaway packaging. All good ideas that should be introduced, but mainly behavioural in nature. Taxes such as the sunbed levy has the potential to save large sums of money for the Welsh NHS by limiting the development of cancers caused by harmful sunbeds but it lacks the potential to raise sufficient revenue to future proof our economy.

The conversation about Welsh taxes has begun but it currently lacks the necessary vision that’s required.

So what new taxes should we introduce? Automation is one of the biggest challenges facing the world, let alone Wales, and it won’t just be jobs in Tesco and TATA that are effected. Industries such as finance, law and medicine face the possibility that their work force will be automated. The next Welsh Labour administration should create an automation tax. It should tax companies who replace workers with wires and charge tax on all goods made and services rendered by automated means. It would allow the Welsh Government to future proof our economy. Any revenue raised could be dedicated to retraining our workforce, to education for the young and for the purpose of investing in lifelong learning. Perhaps the requisite powers over welfare can be acquired and trials on a universal basic income can be run. Perhaps, a tax such as this could slow the tide of automation, providing Wales with the time to prepare for our next industrial revolution while the world watches on.

It is likely that given the UK Government’s views on taxation that they would not stand in the way of the Welsh Government creating new taxes. They could possibly see new taxes as a weight around Welsh Labour’s neck, an annoyance to the electorate that could allow them to win a seat or two back across the Severn when the next election comes around.

The next Welsh Labour administration needs to use the new tax raising powers to embolden the Welsh Government and empower its electorate. Perhaps the only way Wales as part of the UK can truly revolutionise its economy and provide the full funding it’s public services need is with a UK Labour Government in Westminster or fair funding via the block grant, but until that happens we need to be radical and engage with new ideas. The possibilities are endless if we engage with what is possible.

Matthew Hexter is the convener of the Welsh Fabians