Welsh Government publish assessment of local income tax to replace council tax feasibility

The Welsh Government have today published their assessment of the feasibility of a local income tax to replace council tax.

Their aim was to examine how to raise stable revenue for local services in the fairest way whilst also considering other ‘advantageous’ outcomes.

The report concluded the system would be ‘unique’ when comparing it to international examples of local taxation but also present challenges.

Practical interactions the taxpayers have with the local authority as the tax administrator are important, so the protection of personal data would be needed in order to build trust and support for the process.

Pilot projects were discussed as well where different versions of the income tax could be trialled, but the Welsh Gov say they can introduce unfairness which would lead to being unpopular and even open to be legally challenged.

“Much more” work is needed on the practical and policy implications it would bring says Rebecca Evans MS.

The Minister for Finance and Trefnydd also says choices would need to be made on what constitutes the ability to pay – such as income and wealth indicators – as well as risks which could include the fiscal flight of taxpayers to England or between local authorities for people who are able to relocate.

Fiscal flight is likely to be focused on high earners wanting to move but losing even a small number of them would see a ‘significant’ impact on the tax-base.

If local authorities are allowed to set their own rates then fiscal flight at a local level could manipulate the tax distribution across Wales which could then create a risk of a ‘race to the bottom’ to attract high earners to local areas.

Ms Evans intends to publish a further report which would bring together the findings from this programme in the near future.

Find the assessment here – https://gov.wales/local-income-tax-scoping-feasibility