Brian Monteith: Yousaf wealth tax would deliver MacBrain Drain – but would he care?

What should Scots make of First Minister Humza Yousaf refusing to rule out the introduction of wealth taxes, including an additional higher earner’s tax band between £75,000 and £125,140?

I suggest Yousaf's game is not about raising desperately needed finances to fill a looming £1 billion black hole (it won't). I wager it is about differentiating the SNP from Labour by attempting to paint Keir Starmer and Anas Sarwar as right wingers, especially as the Rutherglen & West Hamilton by-election is on 5 October.

If I am right, then it tells us the direct and collateral damage such wealth taxes would bring to Scotland's economic prosperity – and therefore the public services that help the poorest – clearly comes well behind Yousaf playing politics in seeking to maintain the SNP’s grip on power.

Last week I argued the Labour Party is absolutely right to rule out wealth taxes, for, whatever you think of “the rich”, experience shows such policies raise a tiny amount of revenue but have an extremely negative impact on the economy.

Austria, Denmark, Finland, France, Germany, Iceland, Ireland, Italy, the Netherlands, Luxembourg, and Sweden, have all abolished their wealth taxes.

Sweden had a wealth tax for almost 100 years before eliminating it in 2007. It had caused massive capital flight estimated at up to SKr1,500bn and its abolition had “virtually no effect” on government finances.

In France, Francois Mitterrand introduced a Wealth Tax in 1988, but it was repealed in 2017. Raising about 1.5% of total tax revenue in most years it was calculated to have caused an annual fiscal shortfall of €7 billion, roughly double what it yielded in revenue. Around 10,000 millionaires left France in 2015 alone, 7,000 of those from Paris. GDP growth was reduced by 0.2% per annum and the tax burden from wealthy departing taxpayers moved onto other taxpayers – a common story that would be repeated in Scotland.

Germany scrapped its wealth tax in 1996, with very little effect on public finances as it raised only 0.8% of total revenues. German economists considering its reintroduction found it would reduce growth by 0.33%, investment by 10%, employment by 2% and tax revenue by €31bn. Neighbouring Austria scrapped its wealth tax in 1993, citing "high administrative costs" and "the economic burden on Austrian enterprises."

Finland abolished its wealth tax in 2006, a reform “motivated by the fact the tax had an unfair impact on enterprises” noted an EU report.

It's not just European countries that have scrapped their wealth taxes. India enacted an annual wealth tax in 1957 but repealed it in 2015. Indian finance minister Arun Jaitely commented: “The practical experience has been it’s a high cost and a low yield tax.”

Some countries persevere, but are losing the battle. While Spain has a heavy wealth tax, reaching 3.5% of assets that brings in less than 1% of total tax revenue, the regions of Madrid and Andalusia have effectively scrapped wealth taxes regionally by providing 100% deductions. Likewise, Galicia has a 50% deduction.

When it suits them, Scottish Nationalists like to talk about Ireland as an example of how to run a small independent country, yet they never mention its bad experience with a wealth tax, introduced in 1975 and abolished by 1978. Costly to administer and providing lower revenues than expected, a respected report on its design called it a costly failure which did not achieve its objective of reducing inequality.

Another favourite of the SNP is Norway, where last year a small wealth tax increase caused thirty multimillionaires to leave – more than the total number of large taxpayers who left during the previous thirteen years. One example, Tord Ueland Kolstad, a real estate and salmon farming investor with a fortune of around 1.5 billion NOK, has moved to Lucerne in Switzerland. He said Norway’s higher wealth tax would cost him around 6m NOK personally or his business 10m in dividend to pay it.

The Norwegian who paid most taxes last year, Kjell Inge Rokke, announced “I’ve chosen Lugano as my new residence, a great place with a central location in Europe… I am just a click away.” His departure will cost Norway 175m NOK per year in lost tax revenue.

Fredrik Haga, 31-year-old co-founder of $1bn-valued crypto data business Dune, also moved to Switzerland. He said “I had to choose: am I based in Norway or do I want this company to succeed? It’s not about not wanting to pay taxes. It’s about paying taxes on money I don’t have.”

The middle classes are also targeted by Norway's wealth tax. The threshold for paying Norwegian wealth tax is £128k, excluding the value of a home and pensions, but including everything else, including cars. As always, the rich can leave but for others that's trickier.

Many more are expected to leave Norway but won’t be coming to the UK where – thanks to Rishi Sunak and Jeremy Hunt, cheered on by Kier Starmer ­– our tax environment and that for non-doms has become unattractive.

While Switzerland has had wealth taxes for centuries, levied currently by cantons and ranging between 0.13% to 1.1%, they can be seen as a substitute for other taxes; with no capital gains taxes and most cantons abolishing inheritance taxes to direct descendants.

Causing a Macbrain Drain among the most mobile people in society, wealth taxes are an example of economic self-harm only advocated by politicians and their unthinking cheerleaders for simple but short-lived schadenfreude.

So yes, Yousaf may yet ignore the economic evidence and introduce Scottish wealth taxes, causing capital flight to lower taxed jurisdictions in the British Isles or further abroad. If so, it would say everything about a willingness for posturing as more left wing than Labour rather than plugging the financial black hole created on his party’s watch.