Tax property not work, governments told

"The tax burden on labour should be substantially reduced in countries where it is comparatively high and hampers job creation," it concludes.

Meanwhile, "taxes such as consumption tax, recurrent property tax and environmental taxes could be increased" to compensate for lower income tax revenues.

The value of property and assets has risen far quicker than incomes across Europe. However, consumption taxes on everyday items such as food, utility bills and petrol disproportionately hit people on lower wages.

Tax on property could be used to control booms in the housing market with the Commission stating that "the favourable tax treatment of mortgages is regarded as one of the contributing factors to over-investment in real estate and the housing market bubble".

According to Commission research, nine EU countries in particular, including France, Germany and Italy, should do more to rebalance their tax system.

Releasing the paper, Economic and Monetary Affairs Commissioner Olli Rehn said that governments had "taken great strides to clear the long backlog of legal and regulatory obstacles to a more dynamic economy. This momentum must be maintained and stepped up".

The Commission has no powers to change national tax policies but has proposed changes, by tabling legislation for a tax on financial transactions that eleven member states are set to apply, as well as revising the VAT system and promoting a common corporate tax base.

The paper is the third annual report on the state of the eurozone economy under the European Semester, agreed by member states in 2010. Although average budget deficit levels are projected to have fallen from over 6 percent in 2010 to marginally over 3 percent, the eurozone economy has fallen back into recession in 2012. Meanwhile, government debt levels are expected to climb to 94.5 percent in 2014 across the EU.

The Commission paper accepts that the austerity budgets being implemented across much of Europe have weakened economic performance, commenting that "fiscal consolidation may have a negative impact on growth in the short term."

"This effect is likely to be stronger during financial crises when financing conditions for other economics actors are also tight."

It also claims that fiscal consolidation programmes between 2009 and 2012 saw public spending fall by 2 percent and tax revenue rise by 1.3 percent.

The EU executive is expected to announce proposals to tackle youth unemployment on 5 December including a guarantee of work, training or further education to under 25 year-olds within four months of them leaving formal education. The scheme is set to be funded by the European Social Fund. Unemployment in the EU grew by 2 million to 25 million in 2012 and stands at 11 percent across the EU, with youth unemployment over 20 percent and as high as 50 percent in Spain and Greece.

The Annual Growth Survey (AGS) will now be discussed by national governments ahead of the March 2013 summit where its main recommendations will be fed into the individual 'national reform plans' for each EU country.