Monday, 9 August 2010

Is now the time for an EU tax?

EU budget commissioner Janusz Lewandowski has caused some raised eyebrows in European capitals today after FT Deutschland published comments about imposing a new tax on EU citizens that would go directly to Brussels. As member states emerge from recession and are looking for cost-saving measures they will be more receptive to the imposition of this new tax, the commissioner said. But how would such an idea go down with the European public? No doubt it wouldn't be popular, but would Europeans still revolt against the tax even if it actually ended up saving them money?

Right now most of the EU budget is contributed to Brussels from member state governments, and there is no direct tax on EU citizens to pay for the bloc's administration. Taxpayers are already paying for the EU, but they do it through their taxes to the member state governments, which in turn then send money to Brussels. It would be as if in the US, you didn't pay any federal tax but only tax to your state, which then in turn sent a chunk of money to Washington each year.

What the commission may propose in September is to move some of that taxation directly to a transaction between the individual taxpayer and Brussels. It's still unclear what form this could take, but it could include an EU tax on luxury items, air travel or large financial transactions.

Whether or not a direct EU tax on citizens is on the table, the discussions over the next EU budget will be highly contentious. Member states are all looking to lower their contributions to the EU as they face severe budget shortfalls. Lewandowski may be thinking that this environment may be a good one to introduce the idea of a direct EU tax, something the commission has wanted for awhile. If the EU could levy its own taxes, member states could pay less to the EU from their national budgets, which would free up a huge chunk of cash. And since the taxes would only affect a minority of individual taxpayers (those taking many flights or those engaged in financial transactions, for instance), it could actually end up saving the average taxpayer money - because member states may be able to avoid raising their tax rates if they can free up money that was formerly going to the EU.

However member states are likely to strongly resist this idea. Taxation has always been the thick red line that the EU is not allowed to cross. Member states have always been concerned that if they allow the EU to introduce any form of direct taxation it could mean the national governments have less control of how funds are spent. This long-standing argument has recently flared up again with calls for an EU-wide carbon tax and also over calls for an EU tax on financial transactions.

There's no doubt that an 'EU tax' sounds very scary to a lot of people, and I'm sure the British tabloids will pick up on the concept for tomorrow's papers and have a field day with it. But the timing may be right for the commission to convince member states that it's in their interest to allow one. It should make for some interesting budget negotiations in September.


FrancoLars said...

I agree that a direct EU tax would be very unpopular with people, especially in the eurosceptic countries (UK, Sweden, Denmark, etc). But it would actually end up saving the average taxpayer money, and would lead to a more efficient allocation of funds. But in order for it to happen, there needs to be serious CAP reform. That's what the UK needs to demand in return.

citizen of Europe said...

Taxation without state is a weird matter. What to ask somehow differently?: Is now the time for an EU federation?