Question of the Week: Should countries with corporate tax rates below the European Union average lose eligibility for structural funds?

Date: 09/09/04

TAAVI Veskimägi is minister of finance in Estonia. We asked him: Should countries with corporate tax rates below the European Union average lose eligibility for structural funds?

Veskimägi: I believe that making a link between the structural aid and corporate tax rates is short-sighted. According to the founding articles of the EU treaty, one of the basic principles of the EU is to favour convergence, ie poorer member states reaching the EU average.

Structural funds serve this purpose by decreasing the gap in economic development between the new and old states.

It is still quite surprising how the basic logic that the more we can help ourselves the less we constitute a burden for the other member states fails to convince some people.

The new member states can promote their economic growth by creating a favourable and attractive economic environment. Removing this opportunity from us means that the gap between the old and new member states will expand. The stronger we are economically, the more we can contribute to the EU budget and the less we are a burden on the French budget. This is in addition to all the other positive "side-effects".

By suggesting that we increase the corporate tax rates, the old member states are exhibiting double standards, as it leads not to convergence, but obstructs convergence within the EU.

Besides, the rhetoric regarding fiscal dumping is irresponsible given that the ratio of corporate tax to gross domestic product in Estonia is on a level comparable to a number of old member states and much higher than, for example, in Germany.

Question answered by Taavi Veskimägi, minister of finance in Estonia on the idea of linking corporate taxation and EU structural aids.