Tax rules that are simple, stable and predictable, coupled with the efficient use of revenues in growth-enhancing public spending, are important tools in the policy mix to promote competitiveness, fairness and shared prosperity, says the European Commission in its review of EU Member States’ tax policies, published on Tuesday 2 July.
In parallel, ensuring increased compliance by all EU taxpayers, including by fighting against aggressive tax planning, would help to promote a prosperous economy by harnessing the full revenue potential of current tax bases and rates.
It is estimated that compliance with tax obligations costs small and medium-sized enterprises (SMEs) 2.5% of their turnover. In addition, a shift between tax bases and a move away from labour taxation may also encourage long-term economic growth although attention should be paid to the possible negative impacts it may have on more vulnerable individuals or households.
While traditional economic literature suggests that high corporate tax rates may weigh on economic growth, more recent evidence shows that the impact of corporate taxation on growth is multifaceted and can vary depending on a number of factors, in particular the design of tax provisions. Labour taxation plays an important role in determining the performance of the labour market, which is a key factor in competitiveness and sustainable growth. Appropriate design of tax and social benefits, taking into account their distributional impact, can help encourage participation in the labour market.
In addition, a balanced tax mix that is better adapted to the future can promote inclusive and sustainable growth, in particular by shifting part of the tax burden from labour taxes to environmental taxes and recurrent property taxes in a fair and efficient way. Well-justified tax incentives can also support economic activities that advance public objectives such as the green transition, provided they are compatible with the existing tax space and are accompanied by effective anti-fragmentation tools to protect the integrity of the single market.
Read the report: https://aeur.eu/f/cxi (Original version in French by Anne Damiani)