The National newspaper in Scotland has the following article from me in its pages today:

A SCOTTISH tax system after independence should look very different from that used in the rest of the UK if Scotland is to be the successful independent country it can, in my opinion be. There are, however, some pre-conditions to this success.

First, if Scotland is to be a successful modern state then its politicians must understand what tax does in a modern economy. What this means is that they have to understand that tax does not pay for public services if a country has its own currency and central bank. If a country has both those things (and without them a country is not independent for all practical purposes, as the experience of Greece has proved) then whenever a government spends it creates new money that it has effectively borrowed from its own central bank. It’s that new money that the central bank creates for it that pays for government spending in such situations, and not tax.

It has to be said, straight away, that this does not mean there is no need for tax. It’s a fact that all governments with their own currencies and central banks can create as much money as they need, at will, and costlessly. But they can’t do this forever. If they keep injecting money, without limit, into their economy a government will eventually create inflation. This, however, need not happen because it has the perfect tool available to it to reclaim the money it has created, and effectively cancel it out of circulation, and that is tax.