Welsh fiscal deficit


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

Deficit

Nine of the twelve UK statistical regions 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. 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.
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. 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.

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. Wales's government deficit was consistently higher than that of Greece during the Greek government-debt crisis 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.
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.