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EU Commissioner for Taxation and Customs Union, Audit and Anti-Fraud
Closing Speech at the Brussels Tax Forum 2010 "Tax Policies For A Post-Crisis World"
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Tax Forum 2010
Brussels, 2 March 2010
Ladies and Gentlemen,
It was a pleasure and an honour for me to be the host of this excellent conference. The high quality of presentations, the lively panel discussions and the exchange with the audience were indeed thought-provoking. This can be taken as a proof that the topic of the conference, "Tax Policies for a Post-Crisis World", struck the right note. What conclusions can we draw after two days of debate?
Using Tax systems for greater stability
We heard yesterday that tax policy was not the driving force in the evolution of the crisis. However, some tax policies like housing taxation or corporate taxation might have created additional incentives for debt-financing and hence may have contributed to creating high levels of leverage, both for companies and households. For complex financial instruments it turned out that uncertain tax rules might have created incentives to misuse these instruments.
Taken together, this is indeed risky and leaves financial actors vulnerable to changing conditions for debt-financing such as increasing interest rates and currency devaluations when credits are concluded in a foreign currency. In this field, there are options to increase the financing neutrality of tax systems, so that debt is not treated more favourably than equity in the investment decisions of business and households. These are good examples of how tax policy can be used to increase stability by reducing distortions in the current systems.
We also heard yesterday that the current debate on financial sector taxation and the coming regulatory reform of financial institutions and markets are interlinked. Taxes and regulations have similar effects. We need to make sure that we look at both issues together in order to identify what merits taxation can have when debating the regulation of financial markets. As I pointed out already yesterday there are different options that can be explored. A tax based on the banks’ balance sheets as proposed by Sweden und the U.S. is one of them. I do believe that these innovative instruments are an interesting way forward that we should consider in more detail. This could also be another, more forward looking role, for tax policy.
There are also other innovative ways to raise revenues through tax instruments not related to the financial sector. Carbon taxes are one example mentioned this afternoon. Environmental taxes are already a relatively well-known instrument. Carbon taxes have been introduced in several European countries since the early Nineties in order to reduce greenhouse gas emissions and the subject is now back in the context of the 2020 climate change commitments. Adoption of such instruments on a larger, European scale seems desirable, as they would undoubtedly encourage innovation to strengthen energy efficiency and environmental protection.
Exit strategy and the Single Market
Yesterday, I stated that this crisis also offers an opportunity to rethink in more general terms our tax systems given the challenges of demographic change, climate protection and development goals. We will have intense discussions in the coming months on how to design exit strategies after the crisis. Taxation will play an important role since we need sound tax policies to finance the substantial debt that has accumulated in the last two years when creating the necessary stimulus packages and support for the financial sector.
From a European perspective, the Single Market plays a key role in these reflections. Exit strategies in the field of taxation should be designed to improve the functioning of the Single Market. We must promote policies that reduce obstacles, distortions, and compliance costs. In order to achieve this, we will also need a higher degree of co-ordination among the Member States.
Professor Mario Monti gave an excellent presentation yesterday outlining the way in which the Single Market can be re-launched and the role of taxation in achieving this. He also pointed out the difficulties in achieving a common political denominator on the tax topics at international level and we are all aware of this. Indeed, the same political difficulty arises when designing national tax reforms.
For this reason, it is important and necessary to clearly highlight and communicate the positive economic impacts of European projects for citizens, governments, and businesses. This has to be done based on empirical evidence in order to create a basis for sensible debate. As highlighted in the discussion this morning, the best project cannot become reality without the necessary political commitment. I will work towards building this political support for tax reforms needed to achieve the goals of the EU 2020 agenda.
The Crisis as an opportunity to reflect globally on our tax systems
Finally, during the last two days, we debated on the tax policy within an international perspective, and this is a good approach.
Our national economies are exposed to the effects of international crises. Even countries that were not affected by the financial turmoil at the beginning of the crisis, ultimately suffered from a decrease in growth and employment. This is the result of the unprecedented degree of integration between our economies. However, whilst we are challenged by global developments, our responses are too often national. This is especially true in the field of taxation.
In fact, we have seen in the excellent presentations on carbon taxes and taxation of the financial sector this afternoon that there is a need for international co-ordination. Uncoordinated policies in these areas could lead to the relocation of tax bases or production sites.
With these final remarks, the 2010 edition of the Brussels Tax Forum has come to a close. Let me underline that I am impressed by the high level of interest shown in the conference. I am very grateful to all chairs, speakers and panellists for their contributions, which I am sure, will also shape the debates in the coming month. I would also like to thank all of you in the audience, either directly here in the Charlemagne building or those who have been following us via the web.
Finally, I would like to thank all of those who contributed to the organisation of the Brussels Tax Forum and more specifically my services in the Directorate General for Taxation and Customs Union and the interpreters who allowed fruitful debate in different languages.
Thank you for your attention and have a safe trip back home.