Wednesday

20th Feb 2019

Opinion

Why majority voting on EU taxation is a bad idea

  • This is merely the latest attempt by EU institutions to gradually abolish any need of unanimity in the council on tax issues (Photo: ptmoney.com)

While most Europeans were still unwrapping their Christmas gifts, the European Commission started a new push to transition to qualified majority voting (QMV) on tax policy.

An initiative kicked off on 20 December called for "more efficient EU law-making procedures," and was followed up by an official communication in January, entitled 'Towards a more efficient and democratic decision making in EU tax policy'.

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The latter was coupled with an analysis explaining how the 'passerelle clause' from the Lisbon treaty could be used to introduce QMV in "areas such as common foreign and security policy, taxation or social policy."

It is merely the latest attempt by EU institutions to gradually abolish any need of unanimity in the council on tax issues.

And while chances are slim of this happening anytime soon – abolishing unanimity would need unanimity itself – the commission has made clear that this is a fight it is ready to fight till the end: "the question is no longer whether there is a need to move away from unanimity in taxation, but rather how and when to do it."

The argument made by EU institutions as well as some member states of them being tired of being held back by naysayers in their integration plans is understandable.

It is certainly also true that decision-making processes could be accelerated by abolishing unanimity votes.

Some down sides

Nonetheless, the plans of the EU would still be highly detrimental.

It is, after all, not by accident that tax policy (as well as the other fields the commission is looking at) is considered a "sensitive" matter.

Indeed, introducing QMV on taxation would include grave dangers and problems, several of which we at the Austrian Economics Center have looked into in more detail.

One of the biggest concerns sceptical member states have put forward is that abolishing unanimity would sooner or later lead to complete harmonisation of tax policy in Europe.

It is something the commission is certainly aware off when it writes that its newest push does not "aim to shift towards a system of harmonised personal and corporate tax rates across the EU."

Nonetheless, other parts of the new documents show a different picture.

For instance, the commission states that moving to QMV would make it possible to avert "harmful tax competition and aggressive tax planning," and bemoans the fact that "as the tax base becomes more mobile, member states are increasingly constrained in the execution of their fiscal sovereignty."

The four-step plan of gradual transition from unanimity to QMV the commission has published goes in the same direction.

QMV should, at first, be introduced on issues like tax fraud and evasion as well as tax measures to fight climate change and improving public health, i.e. steps that will be hard to reject for many.

Eventually, "step 4 would allow a shift to QMV for major tax projects," which will include a common consolidated corporate tax base and the introduction of a (just rejected) digital tax.

Who is to say the EU is stopping here, with unanimity already being broken down entirely? It could instead go much further.

It is not overly surprising then why several member states, especially Nordic and Baltic countries, have reacted with such sensitivity to the commission's proposal.

Harmonising tax rates would, after all, probably not mean harmonising all tax systems to low rates – such as those in Ireland, for instance, but much rather an increase of taxes across the continent.

Remarks by Bruno Le Maire at last week's World Economic Forum in Davos, where the French finance minister called for a worldwide minimum corporate tax rate, certainly will not be reassuring either that this would not be the case.

Not only that getting rid of unanimity votes on this controversial topic would potentially eliminate tax competition, and in case of high minimum tax rates, see Europe lose out to global competition.

Losing veto power on tax issues would also be a significant intrusion on sovereignty.

If EU institutions, with the support of the (qualified) majority, could introduce their own taxes on European individuals and businesses or overrule other member states to adopt specific tax policies in their own countries, there is little point in still speaking of a national sovereignty to levy taxes.

Instead of trying to get rid of a significant check against excessive tax levying, the European commission should do its best to leave tax policy to member states, thus spurring tax competition, and focus itself on truly deepening the single market by eliminating and reducing barriers to trade and do business.

And instead of trying to introduce minimum taxes and move tax rates of other countries to one's own high level, governments like the one in France should think about becoming more competitive themselves.

Kai Weiss is a research fellow at the Austrian Economics Center

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