With ongoing strikes in the public sector Mark Drakeford is under increasing pressure to find some extra cash to bring the disputes to a resolution.
But the Welsh Government has consistently said that because there is no more money coming from the UK Government, they can not afford to meet the pay demands of public sector workers such as nurses. In a recent interview with WalesOnline the First Minister said that until the dispute in England was settled, there was little chance of solving the dispute in Wales.
But Wales does have the ability to generate extra cash without going through Westminster. Every 1% rise in the pay bill across the public service in Wales costs another £100m whereas adding 1p to the basic rate of income tax would raise £220m in Wales.
Using Welsh Government estimates from the last financial year (for 2023-24) we can say that:
For every 1p they add to the basic rate of income tax Wales will receive an extra £220m.
For every 1p they add to the higher rate of income tax Wales will receive an extra £33m.
For every 1p they add to the additional rate of income tax Wales will receive an extra £5m.
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WalesOnline asked the First Minister why he hadn't used the tax raising powers Wales had (despite actually demanding more powers from Westminster).
Mr Drakeford said: "There was a point earlier in the autumn when I thought quite seriously that we might use those powers. But that was in the context where the UK Government, in that brief period of a Liz Truss administration, was talking about reducing the tax burden on people in Wales. The plan at the UK level was to reduce the rate of income tax by a penny in the pound.
"Then we had a serious debate about whether we would raise the Welsh component by a penny, which would leave people in Wales in no different position than they would have been but with £200m also available for investment in public services. I thought that was a potential bargain that we could have struck. I think it's very different when people in Wales are facing the highest levels of taxation that they are facing in 70 years already. So you're now talking not about leaving people in Wales in the same position as they are now but you're talking about adding to the tax take, which is already the highest in the lifetimes of any person of working age."
But this begs the question of why not raise taxes for higher earners? According to Mr Drakeford, the issue with this is that it wouldn't raise much money.
"The huge bulk of taxpayers in Wales are basic-rate taxpayers," he said. "You raise very little indeed by raising the higher additional rate. It is £5m and that's if everybody paid it and people are that end of the income spectrum are mobile and have accountants who help them to make sure their tax affairs are tax efficient and so on. They might have a second home somewhere across the border that they could register from. So you are not even guaranteed to get the £5m. To raise money of any significance you have to raise the basic rates and there you are talking about people who earn £12,500 a year."
When pushed on whether he would ever consider in the near future raising the basic level of tax, Mr Drakeford told an anecdote about a woman who came into his surgery.
He said: "I always have in my mind a young woman who came to see me at a surgery. She came in and she put her bills on one side of the table and she put payslips on the other. She was working in three jobs and she still couldn't manage to meet her bill. And she wasn't spending anything extravagant. So if you're thinking about raising income tax in Wales I think a government has to bear in mind the impact that that has on people who are at that very, very, very modest end of the income spectrum.
"And then there's a second reason which is that I'm an old-fashioned Keynesian. When it comes to the big picture of the economy and Keynesian economics will tell you when the economy is in a downturn governments should act in ways that bolster the money people have in their pocket so they can go out and spend and countercyclically get the economy moving again.
"Rather than at this moment when the economy is shrinking taking money out of people's pockets because that means, in Wales, less money that people have to spend on the high street, less money to go out and have an evening out, less money to go to the cinema. The more money you take out of people's pockets the more that downturn in the economy is likely to go on for longer."
You can view the full interview with First Minister Mark Drakeford here.
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