SCOTLAND’S tax system is “not fit for the future” and needs a radical overhaul to cope with the costs of an ageing population and climate change, a thinktank has warned.

In a new paper for Reform Scotland, former Scottish Government policy expert Heather McCauley said the pressures were so profound that a higher tax take was “inevitable”.

A former adviser to two New Zealand Prime Ministers, Ms McCauley said Scotland should redesign its tax system rather than merely “tinker” with it.

“Scotland needs to start again,” she said, recommending a shift towards raising more revenue on wealth, including a land tax.

She suggested Scotland could follow New Zealand and Australia and set up an independent expert commission to review the country’s tax system every five or ten years.

She said a commission chaired by the OECD could be an option.

“Even countries with well-established and longstanding tax policy capabilities need deep expertise to develop an effective tax strategy,” she said.

The move would also help overcome the "squeamishness" of politicians when discussing taxes that create winners and losers, and help build consensus on reforms.

Although Holyrood has had the power to create its own taxes since 2012, it has not done so, preferring to create new devolved spending measures, including benefits.

The report, Taxing Times: Why Scotland needs new, more and better taxes, said demography would force the country to raise more tax in the coming years to fund health and care for the elderly.

Current projections are for a 68 per cent growth in the number of over-75s in Scotland over the next 25 years, zero growth in the 31-60 age group and a 16% fall in the 16-30 group.

It means far more people reliant on high public spending, but a smaller pool of tax-paying workers.

There will also be a need for costly upfront climate change mitigation measures.

Ms McCauley said tax reform should involve broadening the base of who pays tax, to lower the rates, with the Government setting clear objectives to take the public with it.

She said higher or additional taxes should focus on “immobile wealth”, such as land.

Ms McCauley said: “Scotland will face increasing pressure on its public finances in the coming years, both as a result of global issues such as climate change and the pandemic recovery, but also because of local issues such as Scotland’s demographic challenge.

“Inevitably, higher tax revenue will be required to deal with this.

"In order to create the right environment for optimal tax raising, debate in Scotland needs to focus as much on the way money is raised as it does on the way money is spent.

“Having studied tax systems in similarly sized countries across the world, from New Zealand to Scandinavia, it is clear to me that the current structure of Scotland’s tax system is not fit for the future.

“In short, Scotland needs to start again. It needs a new and fairer tax system, focused more on immobile tax bases such as wealth and less on mobile ones such as employment income. This new system needs to be used to drive sensible and sustainable increases in overall tax revenue to cope with the challenges of the rest of the 21st century.”

Reform Scotland Director Chris Deerin added: “Tax is among the most controversial and difficult issues in politics. Most people would prefer to pay less of it, but we live in times where the demands on the public purse are growing. Scotland’s overall population is ageing, while our working-age population is shrinking. We must find new revenue just to meet existing commitments, even as new commitments come on line too – such as funding a national care system. Meanwhile the Covid epidemic has raised national debt levels, and governments are also trying to help households through the cost-of-living crisis, with its consequences for heating bills, the weekly shop, and mortgages.

“As Heather McCaAuley points out in this report, it’s very difficult to see how Scotland can meet its future commitments – whatever its constitutional status - without looking afresh at the tax system, at who and what we tax, and at what the right balance should be.

“Redesigning the tax system is a major task, and a delicate one, but the system we have in the UK is clearly no longer fit for purpose, and serves only to limit smart thinking.

"As in so much else, political vision and courage are what the nation needs in this period of change. We trust policymakers will find this contribution to the debate a useful, innovative and inspiring one.”