Fiscal autonomy is within our grasp
The proposition that a fiscally autonomous Scotland – whether independent or not – set within a wider sterling area would have no ability to determine its own tax and spending policies (your report, 11 July) is simply wrong.
Fiscal autonomy would provide a Scottish Government with the fiscal policy levers it needs in order better to encourage investment, create employment and maximise the efficiency of public spending.
All of this will contribute to raising the underlying long-term growth potential of the economy, but only if appropriate and disciplined fiscal policies are pursued subsequently.
Certainly, fiscal autonomy must not result in a Scottish Government running excessive budget deficits or incurring unsustainable debt obligations.
But neither outcome is a necessary consequence of a fiscally autonomous government operating inside a monetary union.
Presently there are many eurozone countries with sustainable – and many countries outside any monetary union with unsustainable – deficit and debt balances.
Self-evidently, the eurozone’s fiscal problems originate in bad policy decisions by weak or incompetent governments – and lenders operating in an inadequately regulated banking sector wrongly assuming that a sovereign debt default is effectively impossible – and not per se in membership of a currency union lacking a full fiscal union.
We accept entirely that fiscal autonomy must be accompanied both by fiscal discipline (ideally through a rules-based regime) and co-ordination between the Scottish and UK governments in the operation of fiscal policy.
Some time ago we proposed that an independent Fiscal Policy Commission be set up to ensure the long- run sustainability of Scotland’s fiscal policy – a proposal that has been taken up by the Scottish Government and is already implemented in the EU’s most successful economies (Austria, Belgium, Germany, the Netherlands and Sweden).
Even within these constraints, however, a lot of scope evidently exists for a Scottish Government to deliver a fiscal policy mix that is appropriate to tackle Scotland’s distinctive economic and social challenges.
Fiscal autonomy should not be equated with fiscal indiscipline, fiscal impotence or fiscal autarky.
Instead, it provides a government with the economic policy levers needed to manage the economy responsibly, this being particularly important during periods of economic turmoil such as we are currently experiencing.
(Prof) Andrew Hughes Hallett
George Mason University
(Prof) Drew Scott
University of Edinburgh
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