Committee convener Bruce Crawford says the budget is now far more reliant on the performance of the Scottish economy.

Mr Crawford asks how much the budget focuses on productivity growth.

Finance Secretary Derek Mackay says the parliament is no longer a spending parliament, it is now a tax and spending parliament. 

Mr Mackay says there are now extra considerations to make such as population when making policy decisions. 

A Scottish parliament debate about tax ended in stalemate after no party was able to win a majority of votes.

MSPs were talking tax ahead of the government's draft budget last December.

The Tories put forward a motion opposing the SNP's plans, which would not replicate a UK government tax cut for high earners.

Image source, bbc

Amendments from all parties, including one from Finance Secretary Derek Mackay were rejected in a series of votes, before the motion itself also fell.

As a minority government, the SNP would need to win support from at least one party to back its budget.

However, there was no consensus on show at Holyrood following the tax debate.

There will be a formal vote on the government's tax proposals prior to the final vote on the budget in February, so both the tax plans and the budget itself will need to win backing.

Image source, bbc

Committee convener Bruce Crawford says this evidence session will focus on the revenue side of the draft budget.

Finance Secretary Derek Mackay says he will speak on taxation today.

Mr Mackay says he believes the government's position is transparent and he praises the work of the Scottish Fiscal Commission.

He says the fiscal framework and the budget framework are complex.

Mr Mackay says he will freeze the rates of income tax  and will raise the threshold for the 40p tax rate to by no more than the rate of inflation - to £43,430 in 2017/18.

Image source, bbc

The committee will now question Finance Secretary Derek Mackay on his budget proposals.  

Mr Mackay will face the finance committee over his draft budget, which will see Holyrood use new tax powers for the first time.

The Scottish government does not plan to replicate a UK Treasury income tax cut for higher earners once Holyrood gains the power to set rates.

Scotland's parties have failed to reach a consensus over tax, with previous Holyrood votes ending in stalemate.

Members will also hear from Robert Chote, chairman of the Office for Budget Responsibility (OBR).

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Committee convener Bruce Crawford thanks OBR chairman Robert Chote and the first evidence session ends.

Mr Coffey asks about the impact of the falling pound on imports.

The OBR chairman says there will be a short term benefit, as in the long term the assumption is made that growth in imports and exports will fall.

SNP MSP Willie Coffey says the OBR are "being asked to fill in a crossword without any clues".

Mr Chote says that would be easier than his spot the ball analogy.

SNP MSP and committee convener Bruce Crawford asks about the productivity conundrum.

Mr Chote says it is beyond the remit of the OBR to give advice on how to increase productivity.

He says lower productivity does appear to be part of a global phenomenon. 

Committee convener Bruce Crawford asks about the impact of UK government income tax policy on the block grant adjustment.

Mr Chote says the OBR is constrained by deciding when a policy is firm enough to be included in the forecast.

He says the Treasury is asked if the policy is firm and if the answer is no it is not included.

Mr Fraser says the OBR forecasts show the Scottish income tax revenues will grow faster than rUK.

He says Scotland has not been performing as well in terms of GDP growth, with worse unemployment and employment figures in comparison with rUK.

The Tory MSP says this makes it harder to understand the faster growth rate on income tax.

Mr Chote says Scotland performs better than Wales.

Mr Fraser says clearly we have an ambition to be better than Wales.

Administering the new Scottish rate of income tax (SRIT) will present "significant challenges", a watchdog has warned.

In its report,, external the National Audit Office (NAO) confirmed the HMRC failed to contact 420,000 people to confirm the accuracy of its records.

HMRC began contacting potential Scottish taxpayers last December.

But an error in the "design of HMRC's taxpayer identification exercise" meant 420,000 people did not receive letters.

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The Scottish government said it had made it clear to HMRC that the identification of Scottish taxpayers "must be robust and accurate".

The letters from HMRC were intended to confirm the accuracy of its records of taxpayers who live in Scotland and would pay the Scottish rate.

After the mistake was discovered, those who had not been contacted received "coding notices" which informed them of the change in their annual tax code, and provided basic information on what is meant by an "S" code.

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Conservative MSP Murdo Fraser says the budget will for the first time have the complete devolution of income tax.

Mr Fraser asks if the Scottish income tax level share prediction as being higher than the UK is correct.

Mr Chote says it is and says these are relaitvely small differences over time.

Mr Chote says most external studies suggest the outcome of the Brexit negotiations suggest a tighter not a looser migration policy.

SNP MSP Ivan McKee asks if the best way to reduce immigration is to "crash the economy".

The OBR chairman says: "Those are not words we use."

SNP MSP Ivan McKee says the ONS population forecasts are growing due to inward immigration. 

Mr McKee asks if there has been any modeling at all on lower immigration given that 17m people voted for it.

Mr Chote says he will leave it up to Mr McKee to say that people voted for lower immigration during the EU referendum.

The chairman of the OBR says the ONS figures reflect the more recent past in terms of migration figures not necessarily assumptions of what will happen. 

Scotland's public spending deficit stood at just under £15bn in the past financial year amid plummeting oil revenues.

Official Scottish government statistics published in August showed the country spent £14.8bn more than it raised in taxes in 2015/16, including a share of North Sea revenue.

That figure represented a 9.5% share of GDP, the report said - more than double the 4% figure for the UK as a whole.

Revised figures for the previous year put the Scottish deficit at £14.3bn.

The UK's spending deficit is £75.3bn.

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Mr Chote says there is unemployment rising relative to the previous forecast due to the weakness in business investment.

The OBR chairman says in the longer term the assumption is there will be weaker economic performance and GDP.

Mr Harvie asks if the OBR has to factor in the UK government policy on migration..

Mr Chote says he does not know what the policy will be, but accepts the policy objective of the UK government.

The Green MSP asks if that means there will "be two heaps of bad" to be added in.

The OBR chairman says it is not his job to say what migration policy should be.

Scottish Green Party MSP Patrick Harvie asks why the OBR have not looked at the possible implications of Brexit and potential job losses.

Mr Chote says the approach to Brexit is constrained by the OBR remit and it cannot look at difficult policy options.

The OBR Chairman says that is why there was no forecast in advance of the referendum.

He says some institutions have produced different forecasts for different trade regimes.

Conservative MSP Dean Lockhart says there are variations of productivity rates across the UK and asks for a regional break down.

Mr Chote says he will have to leave that to others as the OBR does not produce that breakdown.

Mr Chote says if you have less business investment there is less capital for business.

The chairman of the OBR says the challenge for forecasters at the moment is that they are looking at two very different financial decades.

He says one period had a very strong economic performance and the other had the financial crash.

Mr Chote says the key uncertainties are earnings growth and productivity growth.

Committee convener Bruce Crawford says there are differences in OBR and Scottish government forecasts but both are more optimistic than other forecasts.

Mr Chote says the OBR forecast is more optimistic than the Bank of England but some say it is not optimistic enough.