Algirdas Šemeta EU Commissioner for taxation, Customs Union, Anti-Fraud, Audit and Statistics "Tax Policy under a Common Currency" Brussels Tax Forum 2012 Brussels, 5 March 2012
European Commission - SPEECH/12/151 05/03/2012
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EU Commissioner for taxation, Customs Union, Anti-Fraud, Audit and Statistics
"Tax Policy under a Common Currency"
Brussels Tax Forum 2012
Brussels, 5 March 2012
Ladies and Gentlemen,
It is my pleasure to welcome you to the sixth Brussels Tax Forum.
This year's topic “Tax policy under a common currency” brings a new angle of analysis in our permanent quest to promote growth-friendly tax systems and tax coordination within the European Union.
The theme of this year is particularly topical, given the dramatic challenges our Member States, our economies, and our people are currently facing.
It is now ten years that we have had the euro in place. Things may seem grim at the moment. However, let’s not forget all that the euro has brought us: low inflation, transparency of prices for consumers and companies, better integration of financial markets and increased trade. The Euro has also brought to its members the end of exchange rate risks and conversion costs.
This probably means that there is now a higher degree of mobility of factors across Member States, in particular for capital and high-skilled workers. There is in the economic literature some evidence that capital movements have become more responsive to the level of capital taxation. It follows that we have to factor in the element of increased tax competition in our analysis of solutions to our common problems.
EU leaders have highlighted taxation as a fundamental component in our recovery efforts. Again last Friday, the EU Council gave a strong signal that they expected more tax coordination, and faster.
What do we do in tax policy in the EU
Since the beginning of its mandate, the European Commission has been very committed to reshape its intervention in the tax policy field.
First of all, the original objective linked to the very existence of European tax policy goals needs continuous and improved commitment. I am referring to the strengthening of the Single Market. That is one of our greatest assets: An asset that we can build on.
The Single Market has brought countless benefits to Member States, citizens and businesses.
By working together in tax coordination, we can bring more certainty and less red tape – a better environment in which businesses can grow. I am very encouraged that last Friday, the European Council recognised the need to carry forward the work on proposals such as energy taxation, the common consolidated corporate tax base, the financial transactions tax and Savings Taxation.
It is also a fact that new challenges require new solutions: the increased attention devoted to the quality of tax systems has made us aware of the importance linked to the promotion of this objective. We need to push stronger and stronger for structural reforms in our Member States, reforms that would lead towards efficient and pro-growth tax systems.
Last November, the European Commission published its Annual Growth Survey, which launched the 2012 European Semester of economic governance. Given the need to improve the contribution of the revenue side to fiscal consolidation more attention is now being put on the design and structure of tax systems.
This would allow improvements in their effectiveness in collecting revenues, their efficiency in avoiding unnecessary distortions and their fairness in distributing the tax burden on the basis of the ability to pay.
I am happy that last week's European Council gave a strong backing to the approach suggested by the Commission. Tax policy is now seen as a key ingredient in the strategy towards fiscal consolidation and growth, together with a number of important issues such as structural reforms, employment and social inclusion.
The Council has invited Member States to review their tax systems with the aim of making them more effective and efficient, removing unjustified exemptions, broadening the tax base, improving tax collection and strengthening the fight against tax fraud and evasion.
It has also repeatedly called for stronger coordination through enhanced dialogue on taxation at the EU level. This pragmatic coordination has also been highlighted in the Euro Plus pact as an element of the reinforced economic governance.
As a next step in the European Semester process, we encourage Member States to reflect these orientations in their National reform programmes.
This will form the basis of the Country specific recommendations that the Commission will issue later this spring. Those recommendation should of course be adapted to the particular macroeconomic environment of each Member States, which can differ depending whether they are Euro zone members or not.
This leads to the second part of my intervention, which concerns the possible specific feature of tax policies under a common currency.
What do we need in the framework of a monetary Union?
Our discussions come at a time when the euro and its future are dominating headlines and political discussions. We meet in the wake of the signature, last Friday, of a Treaty that will help ensure greater stability in European public finances and restore the credibility of our common currency.
In the year since the Tax Forum last convened, there has been remarkable progress at EU level in establishing greater economic governance.
There has also been a concentration of minds on the need to secure a true economic, as well as monetary, union.
Until now, it has been difficult to establish a direct link between the advent of monetary union and changes in the tax system. First, while fiscal rules have been established for the monetary union, they are not specific to taxation. Most significant changes in tax policy until now were linked to the completion of the internal market.
Secondly, euro-area countries are not a homogeneous group: the potential links between tax policy and monetary union may differ by country size as will the potential spill-over of effects.
Finally, tax reforms in the EU Member States have been influenced by many other developments independent of the existence of the euro.
But the crisis has changed attitudes to what it means to be part of a common currency. I doubt there is a single person today who would reasonably argue that we can have one currency, with 17 divergent economic policies.
A coordinated approach to all areas of fiscal policy is vital for a strong euro and our collective growth. It is now time to reassess the role of tax policy coordination in the context of the monetary union.
Firstly, the fiscal imbalances that our member States are facing in their consolidation efforts are huge and require action on the revenue side. Although not limited to the Euro zone Members, the consolidation effort is particularly challenging for them, the more so if we want to preserve and develop sources of growth.
Secondly, an issue to be debated is to what extent, in the monetary union, we would need more or different tax coordination actions - for example the use of fiscal devaluation - as compared to what is needed for the Single Market?
One reason would obviously be the lack of an important adjustment channel: the exchange rate.
Thirdly, the issue of tax shift is particularly relevant. The objective behind tax shifting is to stop taxing the things we wish to support (like income and savings) and shift towards taxing less distortive bases or things we do not want (like waste and pollution). But reducing income from a tax base as stable as labour - although a necessity - for more mobile bases bears risks for Member States. A coordinated framework for tax shift should give them better guarantees of success and help to ensure fair and acceptable competition.
These are the key elements of your debate in this sixth Brussels Tax Forum. I hope we will leave tomorrow with clearer ideas as regards the following very important questions.
- First question: Can coordination of tax policies help to reduce fiscal imbalances?
The challenges of consolidation and finding an appropriate tax and expenditure mix are posing real problems now. Confronted with fiscal imbalances, EU member states are faced with very difficult decisions.
We need to look closely at the potential of greater coordination to make tax systems more effective, particularly in the area of labour and capital taxation. I would believe that, in the Euro zone, this coordination could go beyond a simple exchange of best practices. A process of active "peer pressure" would help improving the way forward in combating fiscal imbalances.
- Second question: Should tax policy compensate the absence of exchange rate adjustment?
In a system of flexible exchange rates the stabilising effects of appreciation and depreciation help to iron out trade imbalances. With fixed rates something else has to happen.
Tax, or fiscal devaluation, is one possible option. This can be achieved, for example, by shifting tax away from income based taxes towards VAT thus supporting cheaper exports. This calls into question existing tax mixes and raises important issues about the degree of coordination needed between Member states to ensure its effectiveness.
- Third question: Would more coordination facilitate the process of shifting taxes from labour towards less growth-harmful tax bases?
There is no doubt about the importance of stimulating growth. There is clear consensus that certain forms of taxation, notably on the income of persons and corporations are more harmful to growth than others such as consumption and property taxes. Nevertheless decisions for individual Member states are coloured by important structural differences in their economies as well as differing historical approaches.
As I see it, the exercise should take into account the specific situation of each Member States, and notably in the Euro zone. For this reason, one could imagine a more intensive use of the European Semester for coordination of tax policies, through the elaboration of country specific recommendations. As part of the overall reinforced economic governance, this would contribute to the design of effective and fit for purpose national tax reforms.
- Final question: How do we ensure that our common goals in the monetary union are not undermined by forms of tax competition and ensure respect tax assignment?
Living within a monetary union has probably increased the degree of mobility of factors between Member States. This underlines even more the need to have a shared view on tax competition issues.
This can be more complex in a situation where there are many levels of governance with differing taxing powers. In addition to the treaty rules on competition, the EU has also looked to tackle tax competition through the past, and indeed ongoing, work of the code of conduct group on business taxation. This group was however created in a situation where there was perhaps less interdependence than there is now, less mobility of factors also.
It is time to reflect on whether the specificity of a monetary union could mean that more has to be done in the field of tax competition in order to ensure fair tax assignment.
Ladies and Gentlemen,
The crisis has changed attitudes to how we approach taxation within the EU. Gone are the days when Member States can "go it alone", implementing tax policies in isolation without a thought to what their neighbours are doing. This is all the more true in a monetary union.
The European Union leaders have now repeatedly highlighted taxation as a fundamental component in our recovery efforts; A fundamental component in our reinforced economic governance.
And some of them are, rightly so, committed to progress and to use all the tools available, including for example the reinforced cooperation provided for under the Treaty rules.
I am delighted to declare open the 2012 Brussels Tax Forum. I am sure that your debate will once more contribute to the shaping of the European Tax policy. Why? Because this year again, some of the most distinguished speakers have accepted to share their views on very important and topical subject. I would like to warmly thank them for having accepted our invitation. I look forward to their presentations and to the debates during these two days
I thank you very much for your attention and I now invite Mrs Sharon Bowles, Chairwoman of the Economic and Monetary Affairs Committee of the European Parliament to take the floor.