Welsh fiscal balance: Difference between revisions

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The Welsh fiscal deficit is the gap between government spending in Wales and local tax revenue. For the 2018–19 fiscal year, it was estimated at around £13.7 billion, which was 19.4 percent of GDP and about £4,300 per capita.

Deficit

Nine of the twelve UK statistical regions (the exceptions are London, South East England and East of England) carry a deficit. At £4,300, Wales's fiscal deficit per capita is the highest of the regions except for Northern Ireland fiscal deficit, which is nearly £5,000 per capita.^[1]^[2] Tax revenue per capita in Wales is only 76 percent as much as the UK average, but spending is 108 percent as much, leading to shortfall. Wales spends more on social security than other parts of the UK but significantly less on infrastructure and scientific research.^[3]

In 2016, Wales spent £14.7 billion more than it gathered in local revenue, which decreased to £13.7 billion for the 2018–19 fiscal year, due to reduction in public spending (which peaked in 2011–12).^[4]^[2] For the 2018–19 fiscal year, the fiscal deficit is about 19.4 percent of Wales's estimated GDP, compared to 2 percent for the United Kingdom as a whole.^[3]

Implications

Wales spends 11 percent more per person than England. Welsh economist Ed Gareth Poole notes that fiscal transfers between wealthier and poorer parts of a sovereign state are not unusual.^[3] Wales's government deficit was consistently higher than that of Greece during the Greek government-debt crisis^[5]^[6] but, unlike Greece, the gap was covered by transfer payments from the rest of the UK. Such transfer payments, according to the economist Robert A. Mundell, are essential to a functional currency union.^[7]

The fiscal deficit has implications for hypothetical Welsh independence. The Welsh economist John Ball suggests that an independent Welsh government could plug the budget shortfall by instituting land value tax, tourist tax, or other new taxes. In his opinion, VAT revenues from businesses not owned by Welsh residents are underestimated in the current revenue data, meaning that the shortfall may not be as high as it appears.^[8]^[9]

References

^ Birnie, Esmond (18 February 2020). "Scrutinising Northern Ireland's sizeable fiscal deficit is interesting". Belfast Telegraph. Retrieved 23 April 2020.
^ ^a ^b Rutter, Calum (2 August 2019). "Welsh spending cuts cause deficit reduction, says study". Public Finance. Retrieved 23 April 2020.
^ ^a ^b ^c "Shortfall in public finances in Wales due to lower revenues, report finds". Cardiff University. 2 July 2019. Retrieved 23 April 2020.
^ Dickins, Sarah (29 July 2019). "Tax and public spending gap narrows in Wales". BBC News. Retrieved 23 April 2020.
^ Kindreich, Adam (20 July 2017). "The Greek Financial Crisis (2009–2016)". Financial Scandals, Scoundrels & Crises. Exhibit 2. Retrieved 23 April 2020.{{cite web}}: CS1 maint: location (link)
^ Government Expenditure and Revenue Wales 2019 (PDF) (Report). Wales Fiscal Analysis (Cardiff University). 2019. p. 9.
^ Thomas, Landon (27 January 2012). "The Welsh Economy Slips, but London Cushions the Fall". The New York Times. Retrieved 23 April 2020.
^ Ball, John (25 January 2019). "Is Wales really too poor to be independent?". Institute of Welsh Affairs. Retrieved 23 April 2020.
^ Ball, Dr John (5 July 2019). "Does Wales have the tax base to make independence viable?". birminghampost. Retrieved 23 April 2020.

[Birnie-1] Birnie, Esmond (18 February 2020). "Scrutinising Northern Ireland's sizeable fiscal deficit is interesting". Belfast Telegraph. Retrieved 23 April 2020.

[public_finance-2] Rutter, Calum (2 August 2019). "Welsh spending cuts cause deficit reduction, says study". Public Finance. Retrieved 23 April 2020.

[Cardiff-3] "Shortfall in public finances in Wales due to lower revenues, report finds". Cardiff University. 2 July 2019. Retrieved 23 April 2020.

[4] Dickins, Sarah (29 July 2019). "Tax and public spending gap narrows in Wales". BBC News. Retrieved 23 April 2020.

[5] Kindreich, Adam (20 July 2017). "The Greek Financial Crisis (2009–2016)". Financial Scandals, Scoundrels & Crises. Exhibit 2. Retrieved 23 April 2020.{{cite web}}: CS1 maint: location (link)

[6] Government Expenditure and Revenue Wales 2019 (PDF) (Report). Wales Fiscal Analysis (Cardiff University). 2019. p. 9.

[7] Thomas, Landon (27 January 2012). "The Welsh Economy Slips, but London Cushions the Fall". The New York Times. Retrieved 23 April 2020.

[iwa-8] Ball, John (25 January 2019). "Is Wales really too poor to be independent?". Institute of Welsh Affairs. Retrieved 23 April 2020.

[9] Ball, Dr John (5 July 2019). "Does Wales have the tax base to make independence viable?". birminghampost. Retrieved 23 April 2020.

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@@ Line 3: / Line 3: @@
 [[File:Net fiscal balance of Wales and UK in percent of GDP.png|thumb|upright=1.3|Net fiscal balance of Wales (red) and UK (blue) in percent of GDP]]
 [[File:Net fiscal balance by UK nation and region per capita, 2017-18.png|thumb|upright=1.3|Net fiscal balance by UK nation and region per capita, 2017–18]]
+The '''Welsh fiscal deficit''' is the gap between government spending in [[Wales]] and local tax revenue. For the 2018–19 [[fiscal year]], it was estimated at around £13.7&nbsp;billion, which was 19.4 percent of GDP and about £4,300 per capita.
-The '''Welsh fiscal deficit''' is the gap between the [[UK Government]] and [[Welsh Government]] spending in [[Wales]] and local tax revenue. The fiscal policies which create the economy of Wales are, on the whole, created by the UK Government and as such, [[Wales]] is not allowed to borrow money, issue bonds, exercise quantitative easing etc.<ref name="Nation Cymru">{{cite news |title=Why framing the union as a progressive force is pure dogma |url=https://nation.cymru/opinion/why-framing-the-union-as-a-progressive-force-is-pure-dogma/ |access-date=16 February 2021 |agency=Nation Cymru |publisher=Nation Cymru |date=17th January 2021}}</ref>
-For the 2017–18 [[fiscal year]], the implied deficit was estimated at around £13.7&nbsp;billion, which was 19.4 percent (24% in 2016<ref name="Cardiff" />) of GDP and about £4,300 per capita. This compares to the [[UK fiscal deficit]] of £350 billion between 2019-2020<ref>{{cite news |title=UK set to borrow £350b and more is likely: think tank |url=https://www.businesstimes.com.sg/government-economy/uk-set-to-borrow-£350b-and-more-is-likely-think-tank |access-date=30 January 2021 |publisher=Business Times |date=9 July 2020}}</ref> and a total deficit of over £2 trillion.<ref>{{cite web |last=Barry |first=Professor Mark |title=The Environment, Tax and Wales |url=https://swalesmetroprof.blog/2021/01/04/the-environment-tax-and-wales/#_edn25 |website=swalesmetroprof.blog |access-date=13 January 2021}}</ref> GDP per head in Wales in 2018 was £23,866, an increase of 2.9% on 2017. This compares to Italy's GDP/capita of £25,000, Spain £22,000, Slovenia £20,000 and New Zealand £30,000.<ref>{{cite web |last=Barry |first=Professor Mark |title=The Environment, Tax and Wales |url=https://swalesmetroprof.blog/2021/01/04/the-environment-tax-and-wales/#_edn25 |website=swalesmetroprof.blog |access-date=13 January 2021}}</ref><ref name="Nation Cymru">{{cite news |last1=Lloyd |first1=Dai |title=Wales is not a global anomaly – it can be independent just like every other nation |url=https://nation.cymru/opinion/wales-is-not-a-global-anomaly-it-can-be-independent-just-like-every-other-nation/ |access-date=13 January 2021 |publisher=Nation Cymru |date=14 November 2020}}</ref>
-== Forecast ==
-The total revenues to Wales are expected to grow by an average of 3.5% a year between 2018-19 and 2023-24. On a per capita basis, total expenditure is set to recover its 2011-12 level by 2023-24. <ref name="Cardiff" />
 ==Deficit==
-Nine of the twelve UK statistical regions carry a deficit; the exceptions are [[London Region|London]], [[South East England]] and [[East of England]]. At £4,300, Wales's fiscal deficit per capita is the highest of the regions except for [[Northern Ireland fiscal deficit]], which is nearly £5,000 per capita.<ref name="Birnie">{{cite news |last1=Birnie |first1=Esmond |title=Scrutinising Northern Ireland's sizeable fiscal deficit is interesting |url=https://www.belfasttelegraph.co.uk/business/analysis/scrutinising-northern-irelands-sizeable-fiscal-deficit-is-interesting-38964731.html |accessdate=23 April 2020 |work=[[Belfast Telegraph]] |date=18 February 2020}}</ref><ref name="public finance"/> Tax revenue per capita in Wales is only 76 percent as much as the UK average, but spending is 108 percent as much, leading to shortfall. Wales spends more on social security than other parts of the UK; the capital expenditure on infrastructure such as transport (which is not devolved to Wales) however is significantly less.<ref name="Cardiff" />
+Nine of the twelve [[Nomenclature of Territorial Units for Statistics|UK statistical regions]] (the exceptions are [[London Region|London]], [[South East England]] and [[East of England]]) carry a deficit. At £4,300, Wales's fiscal deficit per capita is the highest of the regions except for [[Northern Ireland fiscal deficit]], which is nearly £5,000 per capita.<ref name="Birnie">{{cite news |last1=Birnie |first1=Esmond |title=Scrutinising Northern Ireland's sizeable fiscal deficit is interesting |url=https://www.belfasttelegraph.co.uk/business/analysis/scrutinising-northern-irelands-sizeable-fiscal-deficit-is-interesting-38964731.html |accessdate=23 April 2020 |work=[[Belfast Telegraph]] |date=18 February 2020}}</ref><ref name="public finance"/> Tax revenue per capita in Wales is only 76 percent as much as the UK average, but spending is 108 percent as much, leading to shortfall. Wales spends more on social security than other parts of the UK but significantly less on infrastructure and scientific research.<ref name="Cardiff" />
 In 2016, Wales spent £14.7&nbsp;billion more than it gathered in local revenue, which decreased to £13.7&nbsp;billion for the 2018–19 fiscal year, due to reduction in public spending (which peaked in 2011–12).<ref>{{cite news |last1=Dickins |first1=Sarah |title=Tax and public spending gap narrows in Wales |url=https://www.bbc.com/news/uk-wales-49127308 |accessdate=23 April 2020 |work=BBC News |date=29 July 2019}}</ref><ref name="public finance">{{cite web |last1=Rutter |first1=Calum |title=Welsh spending cuts cause deficit reduction, says study |url=https://www.publicfinance.co.uk/news/2019/08/welsh-spending-cuts-cause-deficit-reduction-says-study |website=[[Public Finance (magazine)|Public Finance]] |accessdate=23 April 2020 |date=2 August 2019}}</ref> For the 2018–19 fiscal year, the fiscal deficit is about 19.4 percent of Wales's estimated GDP, compared to 2 percent for the United Kingdom as a whole.<ref name="Cardiff">{{cite news |title=Shortfall in public finances in Wales due to lower revenues, report finds |url=https://www.cardiff.ac.uk/news/view/1523654-shortfall-in-public-finances-in-wales-due-to-lower-revenues,-report-finds |accessdate=23 April 2020 |work=Cardiff University |date=2 July 2019 |language=en}}</ref>
@@ Line 19: / Line 13: @@
 Wales spends 11 percent more per person than England. Welsh economist [[Ed Gareth Poole]] notes that fiscal transfers between wealthier and poorer parts of a sovereign state are not unusual.<ref name="Cardiff" /> Wales's government deficit was consistently higher than that of Greece during the [[Greek government-debt crisis]]<ref>{{cite web |last1=Kindreich |first1=Adam |title=The Greek Financial Crisis (2009–2016) |url=https://www.econcrises.org/2017/07/20/the-greek-financial-crisis-2009-2016/ |website=Financial Scandals, Scoundrels & Crises |accessdate=23 April 2020 |date=20 July 2017|location=Exhibit 2}}</ref><ref>{{cite report|url=https://www.cardiff.ac.uk/__data/assets/pdf_file/0004/1540498/Government-Expenditure-and-Revenue-Wales-2019.pdf|publisher=Wales Fiscal Analysis ([[Cardiff University]])|date=2019|title=Government Expenditure and Revenue Wales 2019|page=9}}</ref> but, unlike Greece, the gap was covered by transfer payments from the rest of the UK. Such transfer payments, according to the economist [[Robert A. Mundell]], are essential to a functional [[currency union]].<ref>{{cite news |last1=Thomas |first1=Landon |title=The Welsh Economy Slips, but London Cushions the Fall |url=https://www.nytimes.com/2012/01/28/business/global/the-wales-economy-slips-but-london-cushions-the-fall.html |accessdate=23 April 2020 |work=The New York Times |date=27 January 2012}}</ref>
-The Welsh economist John Ball suggests that an independent Welsh government could plug the budget shortfall by instituting [[land value tax]] (possibly raising £6 billion per year), [[tourist tax]] and "exploring some ways in which taxation revenue could be improved in a sovereign state".  In his opinion, VAT revenues from businesses not owned by Welsh residents are underestimated in the current revenue data, meaning that the shortfall may not be as high as it appears.<ref name=iwa>{{cite web |last1=Ball |first1=John |title=Is Wales really too poor to be independent? |url=https://www.iwa.wales/agenda/2019/01/is-wales-really-too-poor-to-be-independent/ |website=[[Institute of Welsh Affairs]] |accessdate=23 April 2020 |date=25 January 2019}}</ref><ref>{{cite news |last1=Ball |first1=Dr John |title=Does Wales have the tax base to make independence viable? |url=https://www.business-live.co.uk/economic-development/wales-tax-base-make-independence-16536465 |accessdate=23 April 2020 |work=birminghampost |date=5 July 2019}}</ref>
+The fiscal deficit has implications for hypothetical [[Welsh independence]]. The Welsh economist John Ball suggests that an independent Welsh government could plug the budget shortfall by instituting [[land value tax]], [[tourist tax]], or other new taxes. In his opinion, VAT revenues from businesses not owned by Welsh residents are underestimated in the current revenue data, meaning that the shortfall may not be as high as it appears.<ref name=iwa>{{cite web |last1=Ball |first1=John |title=Is Wales really too poor to be independent? |url=https://www.iwa.wales/agenda/2019/01/is-wales-really-too-poor-to-be-independent/ |website=[[Institute of Welsh Affairs]] |accessdate=23 April 2020 |date=25 January 2019}}</ref><ref>{{cite news |last1=Ball |first1=Dr John |title=Does Wales have the tax base to make independence viable? |url=https://www.business-live.co.uk/economic-development/wales-tax-base-make-independence-16536465 |accessdate=23 April 2020 |work=birminghampost |date=5 July 2019}}</ref>
-== Reducing the Welsh fiscal deficit ==
-The fiscal policies which create the economy of Wales are, on the whole, created by the UK Government and as such, [[Wales]] is not allowed to borrow money, issue bonds, exercise quantitative easing etc. Should Wales have all
-By UK law, Wales must pay for items that do not directly benefit Wales, where there is no 'Barnet consequential' e.g. over £5 billion for [[HS2]] "which will damage the Welsh economy by £200m pa", according to the UK and Welsh Government's transport adviser Prof. Mark Barry.<ref name=Barry>{{cite web |last=Barry |first=Mark |title=Wales and HS2... |url=https://swalesmetroprof.blog/2020/01/07/wales-and-hs2/ |website=SWalesMetroProf (blog) |date=7 January 2020 |access-date=4 February 2021|quotation= We do know for example, that Wales is allocated expenditure for items that do not directly benefit Wales}}</ref> Wales also pays more for military costs than most similarly sized countries, e.g. Wales pays twice the amount Ireland spends on the military.<ref name=Barry/> The UK government spends £1.75bn per year on the military in Wales which is almost as much as Wales spend on education every year (£1.8 billion in 2018/19) and five times as much as the total amount
-spent on the police in Wales (£365 million).<ref>{{Cite web | url=https://www.iiss.org/-/media/images/comment/military-balance-blog/2020/02/new-defence-budgets-and-expenditure-2019.jpg?h=586&la=en&mw=865&w=865&hash=FFC0A4DBDC2F9F9DF53D890823D6F0073CA75ABF| title=IISS Military Balance 2020|publisher=International Institute for Strategic Studies}}</ref>
-The Welsh economist John Ball suggests that an independent Welsh government could plug the budget shortfall by instituting [[land value tax]] (possibly raising £6 billion per year), [[tourist tax]] and "exploring some ways in which taxation revenue could be improved in a sovereign state". In his opinion, VAT revenues from businesses not owned by Welsh residents are underestimated in the current revenue data, meaning that the shortfall may not be as high as it appears.<ref name=iwa>{{cite web |last1=Ball |first1=John |title=Is Wales really too poor to be independent? |url=https://www.iwa.wales/agenda/2019/01/is-wales-really-too-poor-to-be-independent/ |website=[[Institute of Welsh Affairs]] |accessdate=23 April 2020 |date=25 January 2019}}</ref><ref>{{cite news |last1=Ball |first1=Dr John |title=Does Wales have the tax base to make independence viable? |url=https://www.business-live.co.uk/economic-development/wales-tax-base-make-independence-16536465 |accessdate=23 April 2020 |work=birminghampost |date=5 July 2019}}</ref>
-Ball also suggests that Wales' £3bn defence cost is excessive and that at 3% of GDP is more than any other country. He also notes that incoming pensioners from england cost £2bn and a further “accounting adjustment” of another £3bn. <ref>{{cite news |last1=Ball |first1=Dr John |title=Does Wales have the tax base to make independence viable? |url=https://www.business-live.co.uk/economic-development/wales-tax-base-make-independence-16536465 |accessdate=23 April 2020 |work=birminghampost |date=5 July 2019}}</ref> The vast number of external business ownership in Wales makes it difficult to estimate the amount of VAT actually collected in Wales and which is allocated to the business headquarters in England. In an independent Wales, all of these would be in Welsh Government hands, rather than the UK Government's.
 ==References==
 {{reflist}}
 <!-- <ref>{{cite web |last1=Braham |first1=Richard |title=Wales’s fiscal deficit: the gap between tax and spend |url=https://fullfact.org/economy/wales-fiscal-deficit-gap-between-tax-and-spend/ |website=Full Fact |accessdate=23 April 2020}}</ref> -->
-==See also==
-* [[United Kingdom national debt]]
 [[Category:Government spending in the United Kingdom]]