Milan, 12/09/2014 (Agence Europe) - In Milan on Friday 12 September, eurozone finance ministers thrashed out a number of guidelines for the reduction of the tax burden on labour in order to encourage job creation. Eleven countries have been sent recommendations by the Council in this connection.
In a joint statement, the ministers say that reducing the tax wedge “should be targeted at the country-specific challenges, so as to maximise the impact of the reforms. To that end, they should be aimed at the relevant components of the tax burden and at specific groups facing the greatest employment challenges. It should also be ensured that the reforms do not make the tax system overly complicated for tax payers and the tax administration,' explained the head of Eurogroup, Jeroen Dijsselbloem.
Reductions in the tax burden on labour should be fiscally neutral: “reductions of the tax burden on labour need to be duly compensated, while taking into account the country-specific fiscal margin for manoeuvre. To this end, reforms for reducing the tax burden on labour should be accompanied by either a compensatory reduction in (non-productive) expenditure, or by shifting labour taxes towards taxes less detrimental to growth, with a view to respecting fiscal targets in line with the Stability and Growth Pact.”
“The positive effects of labour tax reforms can only materialise fully in well-functioning labour markets. Therefore, the impact of reducing the tax burden on labour can be significantly enhanced when they are part of a broader package of labour market reforms.”
Finally, “the implementation of labour tax reforms with offsetting tax or expenditure measures can affect income distribution. To ensure a successful reform strategy, it is important to ensure broad societal and political support. This may be achieved inter alia through sharing impact assessments and consulting all the relevant stakeholders, as well as a gradual phasing in of the reforms.”
Finance ministers will return to this subject in November when they discuss the draft national reform plans and the European Commission's assessment of them. Eurogroup will also monitor the question in the spring of next year. The ministers urged the Commission to “develop a benchmark for progress we make on the issue.” (EL)