Monti calls for EU-wide tax policy

Date: 21/03/1996

By Fiona McHugh

TAX Commissioner Mario Monti has launched a campaign to persuade EU finance ministers of the need for a harmonised tax system, arguing that a common fiscal policy would help stabilise governments' tax revenues and promote jobs.

In a preview of tax plans to come, Monti says the introduction of a minimum EU-wide tax rate would stabilise the amounts of money raised through different taxes. But he insists that the threshold should be kept low enough to prevent the flow of business and wealth out of the bloc. He is also recommending the adoption of transparency measures aimed at stamping out unfair tax competition.

In a report due to be examined by finance ministers when they meet in Verona next month, Monti rejects the notion that a common tax policy would erode fiscal sovereignty, arguing that it would, on the contrary, allow countries to harness tax policy more effectively to other policy objectives, such as job creation.

“A better coordination among member states in the area of taxation would have avoided the present situation in which individual member states have virtually surrendered sovereignty to market forces in a field that should remain the prerogative of public policy,” he says.

The study suggests member states have managed to keep tax revenues stable over the past 15 years only by shifting the burden of tax away from capital and on to labour - a move which has counteracted job creation measures.

Governments worried about the flow of money out of their respective countries have been forced to decrease taxes on capital to keep up with low capital-tax neighbours. Labour taxes have been pushed up as a result, a phenomenon which in turn has triggered an increase in black market labour.

Between 1980 and 1993, labour taxes grew by 20&percent;, while others decreased by more than 10&percent;, prompting warnings from Monti that “the burden on labour cannot be made any heavier if we are not to worsen the already negative effects on labour costs and employment”.

He challenges finance ministers to snatch control of tax policy from the jaws of the market by agreeing to a single fiscal policy.

Bearing in mind the need to reduce deficits in preparation for EMU, Monti says that to make up for any reduction in labour taxes, new energy taxes, for instance, would have to be introduced, or capital taxes raised - a decision best taken at EU-level. A common tax policy would also ensure the smooth functioning of the single market.

The report, which is the precursor to a series of tax proposals due out before the end of the year, will test the water and allow Monti to take account of member state recommendations in his proposals.

Though the report does not directly tackle the sensitive issue of unanimous voting on tax matters, it does draw attention to the EU's dismal record on this issue - 18 proposals stuck in the Council at the moment and 30 withdrawn by the Commission after member states rejected them.