Friday, April 08, 2005

EU tax harmonisation & the M&S judgement

Leading on the M&S judgement on taxation in the EU the FT observes that:

Judgment in favour of M&S would thus place great strain on the public finances of the countries affected - most are struggling to reduce their fiscal deficits. In Britain, the margin Gordon Brown, the chancellor, has for meeting his fiscal rules in the current cycle has already shrunk to £6bn, and his predictions of a surplus through the next cycle depend on a sharp increase in corporate tax revenues. The budget deficits of Germany, Greece and Portugal are already over the 3 per cent EU limit.

A better solution is to recognise the growing mobility of international capital and design corporate taxation to cope with it. Much lower, preferably flat-rate, taxes provide less incentive to avoid tax. The cost can be offset by abolishing most of the exemptions that enrich the tax avoidance industry.

Countries in eastern Europe that have adopted this approach have shown the way. Those that cling to high tax rates will find their revenues ebbing, no matter how hard they struggle to protect their corporate tax bases.
Full Text @ Tax cuts exclusively for everyone

To expand a little on the comment on this at EU Referendum. All this is one consequence of the establishment of a single european market. The implications for Euro rule busting budget deficits are huge - governments could indeed lose billions. Further, there have already been noises about the harmonisation of corporate taxation from Germany and France because of what they regard as unfair competition from the new member states in Central Europe - this will simply give them more ammunition and might even force the British to support such a measure. The Brussels bureaucrats, not to mention some of the arch eurofantics many of whom favour tax harmonisation and rates being set by Brussels, must be rubbing their hand with glee. For the record I am against tax harmonisation in any shape or form, and firmly for tax competition.