John Swinney’s letter to the Herald
4th October 2013
Independent Scotland could make early investment into an oil fund
Friday 4 October 2013
I NOTE with interest your article about the Fiscal Commission Working Group's paper on the options for establishing a stabilisation fund and a savings fund in an independent Scotland ("Swinney backs call for oil fund", The Herald, October 3).
The advice on the establishment of a stabilisation fund puts to rest any fears around oil price fluctuations impacting on future Scottish budgets.
There is an unanswerable case for using a proportion of Scotland's oil wealth to establish a long-term savings fund. As the working group has highlighted, of the world's top 20 oil producers only the UK and Iraq do not operate some form of recognised sovereign wealth fund. With more than half the wholesale value of North Sea oil and gas still to be extracted, there is an overwhelming case for the government of an independent Scotland to establish a long-term savings fund.
A key question which the Fiscal Commission's report addresses is the point at which Scotland could start to make investments into a savings fund. It has been widely assumed that Scotland would have to run an absolute fiscal surplus before investing in a savings fund, and this has been reflected in the Scottish Government's early thinking on the subject. However, the commission is clear that there is a compelling case for starting to make early investments into an oil fund whilst in deficit so long as it is manageable and debt is on a downward path.
As with most advanced economies, Scotland is running a fiscal deficit, albeit a smaller deficit than the UK as a whole. However, Scotland's fiscal position is likely to strengthen as the economy recovers. Based on the model outlined by the working group, Scotland could consider investing modest sums into a long-term savings fund without an offsetting change to public spending or taxation potentially as early as 2017-18.
In the long run, the economic levers available under independence will enable us to grow the economy more quickly, boost tax revenues and ensure that, in time, a greater proportion of Scotland's oil and gas wealth is invested for the future.
Scottish Parliament, Holyrood, Edinburgh.