EU Commissioner for Taxation and Customs Union, Audit and Anti-Fraud
" Tax reforms needed for consolidation and growth"
Annual Growth Survey - Press Conference
Brussels, 23 November 2011
In the coordination of fiscal policies, a new element is recognised this year in the AGS: Tax policy is fundamental for economic recovery. Moreover, the quality of taxation will determine whether we sink or swim.
If Member States are serious in their efforts to achieve consolidation and growth, then they must take a long hard look at their tax systems. And they must do it now.
Tax reform must go hand in hand with structural reform if we are to see sustainable public finances and financial stability. Let me highlight just a few areas where I think modest changes could yield huge rewards.
Revenues / Tax breaks
First, there is no escaping the fact that Member States have to find new revenues to consolidate their budgets and exit this crisis. Naturally, taxation is the tool they rely upon most for this. But using arbitrary tax rate hikes as the only solution is neither sustainable nor smart.
Member States, instead, should first look at how they can improve the systems already in place. Can they broaden tax bases and close tax gaps? As a first step, they should focus on tax breaks, and whether they are really necessary or fair.
Let me give you an example that proves the point. Company cars currently enjoy favourable tax arrangements in 18 Member States, to the total cost of €54 billion. That equates to 0.5% of the annual GDP of these countries. Is this clever taxation, particularly when we consider the environmental impact?
Likewise, the under-taxation of the financial sector is difficult to justify when the ordinary citizen is carrying the brunt of austerity measures. The Financial Transactions Tax that I have proposed would redress this imbalance and deliver substantial revenue, without compromising the competitiveness or growth of the European economy.
Second, if we want economic growth, we have to create a simpler, more encouraging environment for businesses. At national level, Member States should look at what they are taxing, and how, to ensure that they are not stifling enterprise and innovation.
Shifting the burden away from more distortive taxes on labour, towards more growth-friendly ones such as property and consumption is highly advisable.
Likewise, adjusting the provisions of individual tax bases, to maximise their incentive effects, will contribute to a more dynamic market for companies.
At EU level, the heavy compliance costs and administrative burdens that businesses face in the Internal Market also need to be eliminated. This is the centre of my proposal for a Common Consolidated Corporate Tax Base, which is on the table now in Council. For the sake of businesses across the EU, I would urge Member States to agree on this proposal as quickly as possible.
My third point is that tax increases could be more limited if Member States succeeded in collecting all the revenue that they are already due.
Billions of euros are being lost to tax evasion and fraud every year across the EU. It is time to step up the battle against tax evaders, and against the countries that harbour them.
Member States must focus on improving their tax administrations, ensuring that controls and sanctions are sufficient to deter this kind of activity.
Coordination at EU level is also crucial; to ensure that aggressive tax planners can't exploit loopholes between Member States' systems.
The revised Savings Directive, and proposals for mandates to negotiate on savings agreements with third countries, are still on the table in Council. These will provide us with strong weapons in our common fight against tax havens and evasion. In that light, there is no excuse for Member States not to adopt these measures as quickly as possible.
The European Council last June gave a strong signal to the Commission that it wanted more tax coordination in the EU. The instruments to achieve this are in place.
We have the legislation, and this year alone, I put forward a number of weighty tax proposals to strengthen the Internal Market and improve the quality of revenues.
We have the framework for ensuring benchmarking and exchange of best practice, so that Member States can maximise the impact of their reforms.
We have the spending programme that will support capacity building within the Member States who need it.
And, by integrating our tax policy recommendations into the European semester, we now have the tool to encourage and monitor Member States in much-needed tax reforms supporting consolidation and growth.