The Directorate-General (DG) Economic and Financial Affairs and DG Taxation and Customs Union have drawn up the European Commission’s 2011 Report on 'Tax reforms in EU Member States’. The Report, subtitled ‘Tax policy challenges for economic growth and fiscal sustainability’, covers the tax measures and recent trends adopted by the 27 Member States during 2010 and the first half of 2011.
The European Commission’s focus has shifted towards the consolidation of public finances in Member States, particularly following the measures taken to stimulate the European economies following the 2008 financial crisis. The European Commission examined the possibility of developing tax structures to aid the difficulties faced by Member States in refinancing their sovereign debt.
The Report gives an overview of the rise and fall of tax revenues in the Member States. It shows a drop in revenues in 2008 and 2009 and a returning rise in 2010 also due to tax increases. The first half of 2011 saw a further raise in tax revenues and some Member States amended the tax structure to support growth. In an analysis of the tax structure and the quality of taxation, the Report investigates the effect that taxation has on economic growth, providing a ranking of taxes. It explains that tax distortions must be kept to a minimum, particularly in relation to cross-border tax systems resulting in double or non-taxation. The Report further looks at the possibility of taxation correcting market failures.
The Report unearths three types of potential challenges in the area of taxation and tax policy:
- the potential need to address severe fiscal consolidation challenges by revenue measures;
- the potential to make the tax structure more growth friendly;
- ways to improve the design of the tax system for individual types of taxes.
The Report applies an indicator-based approach and finds that in some euro-zone Member States, higher tax revenues could contribute to consolidation. Other Member States would benefit from a shift from labour taxes levied on vulnerable groups to consumption and real estate taxes. Finding at least one tax challenge in all euro-zone Member States, the Report explores the need to decrease tax expenditure and the debt bias in direct taxation, VAT efficiency, possible options to "green" tax systems, the efficiency of tax collection and issues of tax evasion.
The European Commission held that the tax challenges identified in the Report should be taken a step further in the framework of the European Semester and discussed in the context of the structured discussions on tax policy foreseen by the Euro Plus Pact.
