Scottish Budget - Draft Budget 2017-2018 devolved taxes methodology report

Chapter 1 - Introduction and Background

This paper sets out the methodology and assumptions in relation to the Scottish Government's forecasts for devolved tax revenues which underpin the Scottish Budget in 2017-18 and beyond as well as the forecasts themselves

As in the 2015-16 and 2016-17 Draft Budgets, the spending plans set out in the Draft Budget 2017-18 will partly be funded by revenues from the two fully devolved taxes - Land and Buildings Transaction Tax ( LBTT) and Scottish Landfill Tax ( SLfT) - which replaced the existing UK taxes from April 2015 through powers devolved under the Scotland Act 2012. However, these devolved tax powers have now been augmented by the passing of the Scotland Act 2016 which provides significant additional powers to Scottish Government from 2017-18 onwards with respect to income tax.

Building on the first set of five-year forecasts published in Draft Budget 2016-17, we have again produced five-year forecasts for the devolved taxes (existing and new) to provide transparency around the medium-term assessment of Scotland's devolved public finances. The forecasts for Scottish Income Tax that tax rates and thresholds are based on the Scottish Government's income tax proposals for 2017-18 as set out in Chapter 4. The forecasts for LBTT assume that 2017-18 tax rates and thresholds are as laid out in Chapter 5; the forecasts for SLfT assume our proposed tax rates in and Scottish Landfill Communities Fund ( SLCF) credit rate for 2017-18 is laid out as in Chapter 6.

The Scottish Fiscal Commission (the Commission) is responsible for scrutinising our forecasts until it takes responsibility for producing these and wider economic forecasts in April 2017 for the 2018-19 forecasting round. Over the course of this year, the Commission has independently challenged the methodology, assumptions and data inputs used in the preparation of forecasts through a series of 12 forecast challenge meetings which took place between May 2016 and November 2016. The Commission's remit, with regard to non-domestic rates income ( NDRi), was extended to include consideration of the reasonableness of the economic determinants underpinning the forecasts. Thus, in a change from previous publications, we also detail the methodology underlying the forecasts for these economic determinants.