Tuesday

6th Dec 2022

EU single market needs tax co-ordination, says Monti

Former EU commissioner Mario Monti gave MEPs an indication of what to expect in his upcoming report on the single market on Thursday (28 January), saying greater market integration must be complemented by "collateral policies" to avoid unintended negative consequences.

In particular, greater tax co-ordination between member states should be considered, said the Italian who formerly ruled over the EU's internal market (1995-1999) and competition (1999-2004) portfolios.

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  • EU tax decisions require unanimity (Photo: vistavision)

"No one wants to eradicate completely tax competition," he said, as it "disciplines member states," but policymakers should prevent a further breakdown of internal market barriers favouring capital at the expense of labour markets.

Tax policy is touchy subject for many EU governments. Ireland is amongst those that have successfully used its low corporation tax as a means of attracting foreign businesses, with several newer member states adopting similar policies.

Other countries such as Germany complain these low rates hamper the government's ability to raise the necessary tax receipts to provide adequate public services.

As member states strive to bring their budget deficits into line with EU rules, taxes are expected to rise across the union in the coming years. A badly co-ordinated approach to this could accentuate capital flows to low-tax areas at the expense of European citizens, said Mr Monti.

"Perhaps countries in central and eastern Europe might be able to consider a less aggressive tax policy if they at the same time could provide greater labour into the other member states," he said, referring to current restrictions on workers from several newer member countries.

Relaunch

Despite the 1986 Single European Act and subsequent initiatives to promote greater free trade between member states, analysts and politicians tend to agree that the bloc's stated goal of a barrier-free single market still has a significant way to go.

An EU directive intending to liberalise the provision of services across Europe ran into considerable opposition, while the post-crisis environment has seen an increase in political rhetoric on the need to protect national businesses and jobs, led primarily by French President Nicolas Sarkozy.

"The single market has lost considerably its authority and prestige," warned Mr Monti.

He added that the crisis could be used as a springboard to relaunch the internal market, with his report's recommendations set to focus on both methods to do this and methods to make it politically acceptable.

For instance, the report will look at measures to address fears surrounding the services directive and ensuring consumer rights are protected under Europe's digital agenda.

Temporary support measures for European business must not continue indefinitely, added Mr Monti.

"We want to have respect for Keynes but we don't want to shut away Schumpter," he said, referring to two of Europe's most famous economists, the former a strong advocate of recession spending, the latter known for his theories on entrepreneurship and the fall of established companies.

ECB says more rate hikes to come

European Central Bank president Christine Lagarde said more rate hikes will come, but also admitted a recession will not lower inflation — leaving some economist question the logic of the policy.

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