Brussels, 21/12/2000 (Agence Europe) - In view of preparing the European Council in Stockholm, the European Commission approved, on Thursday, a Communication on the contribution of public finances to growth and employment. This Document, explained Commissioner Pedro Solbes during a press conference, puts forward thoughts and suggestions that represent" a change compared to the budgetary and monetary agenda" as it is set in the Maastricht Treaty as they extend and enrich the convergence criteria: "we still want to improve the quality of public spending" in order to reach the strategic objective (make the EU the "most competitive and most dynamic knowledge economy in the world") set by the European Council in Lisbon, explained Mr Solbes.
EUROPE recalls that the EU Heads of State and Government had, in Lisbon, invited the European Commission to present, by the spring of 2001, a report assessing the contribution of public finances - which represent between 40 and 50% of the EU GDP - to growth and employment. It is foreseen that this report examine if, in particular, the appropriate measure are taken to: 1) reduce the fiscal pressure that weighs on work (low qualifications and low remuneration, in particular) and improve the incentive in favour of the use and moulding of friendly tax and benefit systems, 2) re-orient public spending towards actions aimed at increasing the relative importance of capital accumulation - both human and physical - and support R&D, innovation and information technologies, 3) ensure the long-term viability of public finances, notably in the light of the impact of the ageing population. The Communication adopted on Thursday by the Commission will serve as a basis for this report. It identifies four main challenges that will be raised so that public financing makes a maximum contribution to growth and employment, as follows:
1. Maintaining strong fiscal discipline within EMU. The Union is on the right track, regarding the debate and the budgetary situations that are "close to balance or in surplus". Nonetheless, the Commission considers, said Mr Solbes, that the situation is not fully satisfactory, mainly because of the pro-cyclical loosening of the budgetary stance of some Member States. Consequently, on the basis of four criteria, the Commission notes that reductions of taxes should be accompanied in many countries by further reductions in public spending in order to ensure sustainable alleviation of the tax burden, with the criteria for evaluation of tax reductions being, according to the Commission, implemented in the context of multilateral budgetary surveillance.
2. Progressing too quickly towards compulsory taxation systems and social contributions to promote employment. The reforms initiated in recent years have made it possible to make tax regimes more positive from this angle after a long period - thirty years - where the tax burden on work (mainly social contributions) had increased by one third. Nonetheless, the progress made in Member States is unequal and the tax pressure still remains very high in some of them, mainly if one compares European rates with those prevailing in the United States. In the same way, the reform of social payment regimes remains insufficient (only some Member States have developed contributions related to the exercise of employment in order to make poorly paid jobs financially more advantageous).
3. Contribution of public finances to a knowledge-driven economy. Although national data remain insufficient for now for the final report, Mr Solbes stressed that the United States was keeping an obvious advantage in terms of public investment in the field of knowledge: some 3%, where the EU had descended to 2% in 1999, with its historic low being 1.8%.
Since then, stability programmes have shown improvements as investment should be 2.5% in 2002. Whence, governments should place greater importance on education and training so that European citizens have the necessary qualifications, while playing in favour of greater participation of the private sector in innovation and R&D activities. These efforts will have to be made through a restructuring of spending and not an increase in overall public spending.
4. Assure the long-term viability of public finances. In the Union, the level of dependence of the elderly, i.e., people over 65 as a percentage of the population of an age to work (between 20 and 64), will go from 27% in 2000 to over 50% in 2050, which, in most Member states, will mean an increase in spending on pensions going from 3 to 5 percentage points of the GDP. Given that spending on health should also increase substantially, the EU is faced with a major challenge regarding the viability of public finances. The Commission considers that a comprehensive and coherent approach to the budgetary consequences needs defining.
According to it, it has to comprise the following elements: a) continue seeking healthier budgets and a more rapid reduction of the public debt; b) labour market reform to increase the level of employment (notably, encourage elderly workers to remain in the labour market); c) in many Member States, a more in depth reform of the public pension schemes.