The second part of the SNP's Growth Commission report deals specifically with the fiscal framework: the strategy required to ensure public finances are managed sustainably and with credibility.
The report claims: "This is critically important for any country and especially important for a newly independent country as it transitions to its new governance framework.
"Those who are required to contribute, or manage, taxation revenues deserve as much foresight and insight on what they will be asked to pay and how. And, of course, the providers of debt finance to sovereigns require comfort that contractual commitments made to them will be honoured and underpinned by credible long-term governance and policy."
The document outlines a further thirteen recommendations in relation to the fiscal framework.
They are:
1. Annual Solidarity Payment: Following a successful independence vote an Annual Solidarity Payment should be created to allow the Scottish Government to pay an agreed share of the servicing of a net balance of UK debt and assets and any continued shared services payments.
2. Comprehensive Review of Inherited UK Spending Programmes: reporting within two years this would analyse the inherited strategy and choices for spending across the UK programmes excluding defence which would be subject to separate consideration. The purpose would be to identify savings from costs that need not be replicated, and tailoring to Scotland’s specific position and needs. A saving of £1 billion should be targeted. As government functions are transitioned, further savings should be targeted by replacing the UK approach with institutions modelled on the best of the small advanced economies e.g. in tax collection. This element should target a saving of 0.3% of GDP by year 5.
3. Standing Council on Scottish Public Sector Financial Performance: this should be established to institutionalise the high performance and best practice (compared internationally) across the public sector; incentivising, celebrating and rewarding the best outcomes and efficiencies.
4. Fund for Future Generations: this fund should be created from all windfall revenues including any from north sea oil and gas. The focus of the fund would be on risk bearing by the public sector in exploiting inter-generational opportunities in the areas of Inclusive Growth, Innovation and Science, Infrastructure and the Green Economy. Further work is required on the detail of its remit and governance.
5. Fiscal Targets: should be established and adhered to:
i) Public debt should be maintained at no more than 50 per cent of GDP with borrowing only for public investment in net terms over the course of the cycle.
ii) Public sector deficit should be reduced to below 3 per cent of GDP and maintained at levels consistent with a 50 per cent debt threshold. Over time the definition of fiscal balance should be extended to a broader balance sheet perspective to ensure no ‘offbalance sheet’ practice diminishes transparency.
6. Scottish Fiscal Commission: the resourcing and remit should be extended as policy competences are increased over time. Consideration should be given to its ability to measure the distributional impact of financial measures as well as the broader macroeconomic and fiscal implications.
7. Budgetary Process Review and Implementation: the Finance Ministry should lead a budget process to ensure the fiscal transition is delivered effectively. The government’s strategic priorities should determine negotiations with spending departments along with high quality spending proposals and a rigorous ongoing review of them. Such a review and implementation should borrow from the best international examples and be implemented as an immediate priority and dovetail with the Standing Council on Scottish Public Sector Financial Performance. The outcome should be a systemic process of structured spending reviews as in countries such as Denmark.
8. Comprehensive Taxation Review: is recommended drawing on the best expertise and experience globally with a view to recommending reforms to improve simplicity, neutrality and flexibility. This review should also target a reduction in the inherited UK ‘Tax Gap’, the difference between actual and anticipated revenues. Given the nature of such a review should be designed to outlast any one Parliamentary term it would be beneficial if a cross-partisan approach could be achieved.
9. Debt Management Office: This should be established to a ‘best-in-class’ standard to manage the debt stock and issuance of debt.
10. Asset and Liability Management Office: In due course the DMO should be extended to have broader aggregate balance sheet responsibilities for financial and other asset holdings.
11. National Balance Sheet Review: a comprehensive inventory of assets and liabilities held by the public sector should be undertaken and valued transparently. As well as allocating responsibilities to their management including an assessment of whether the public sector remains the best possible owner of them. Such a process would be ongoing but with an initial reporting period of two to three years. A robust system for asset management and reporting should be established.
12. Deficit Reduction Policy: this should be established with a target of delivering the initial deficit target of under 3 per cent of GDP within 5 to 10 years. Public spending increases in transition should be limited to sufficiently less than money GDP growth to deliver this. At trend rates of growth and inflation this would allow annual average cash increases of above inflation.
13. Transitionary Fiscal Stimulus a fiscal stimulus to growth should be considered and consulted on depending on the prevailing economic circumstances and the perspectives and price required by debt providers. It should be designed to enhance the ability of the economy and public finances to deliver the medium-term target.
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