05 August 2006

EU Tax

I have to lay my cards on the table. I am in favour of a EU tax. History and economics show that democracy is strengthened by levying of tax. Turnouts for European elections are disastrously low which as at least part explained by the fact that EU citizens believe that EU revenue decisions occur at the governmental level.

The levying of a Euro tax would improve transparency and democracy and if it was fair would remove the "budget rebate" squabbles.

In 2001 Romani Prodi called for a direct EU tax to replace the system of funding from national contributions and the progress of this idea has ebbed and flowed ever since. In a classic case of spinning/coverup Labour thinks that an EU tax would increase Europhobia in Britain and is opposed on these grounds.

Even if member states gave the EU the go-ahead the EU would tie themselves in knots trying to achieve it. The Lefties in the EU would be vigorous to make sure that any tax policy conforms with their aim to ensure progressive redistribution (isn't this what the Structural funds are for?).

So whilst I would definitely favour/support a eurotax based on consumption, this ain't going to happen.

The "acceptable" alternatives are company taxation (but how would that increase the democratic link between citizens and the EU) and income tax (a complete minefield).

So as with most questions affecting the EU, we are in paralysis and any movement will be glacial. If Cameron and the Tories are serious about forming a new grouping, a direct EU tax would be an excellent flagship policy for other Euro-sceptic parties to rally around.


Jock Coats said...

There is a call for ideas out at the moment about how to fund the EU beyond, I think, 2008.

One group I am in contact with is calling for a Land Value Tax.

If tax is necessary. You could fund the EU budget two and a half times over if the nation states, through the ECB took control of their own money supply instead of farming it out to commercial bankers. Seignorage reform in the EU could yield, I think, €185bn a year, then you could if necessary have an LVT to ensure that this did not cause overheating in the areas into which it was spent.

Jock Coats said...

Oh - and whatever happens - they should enable states to do what they want with VAT/Sales taxes if that ceases to become the source for EU money (it is in theory currently isn't it?)

Praguetory said...

Thanks for your suggestions Jock. I'm probably sceptical re Seignorage but I will take a closer look. LVT is a reasonable idea and I do support LVT at national level so maybe it would make sense for Europe, too. I think it would be hard to make LVT fair across different countries and it would have to be brought in quite gradually I think.

Re existing funding, member contributions equate to about 75% of current EU funding. This is calculated as C1% of GDP. The rest is from an element of VAT and "own resources (e.g. agricultural levies)" - they are about an eighth each.

Jock Coats said...

My point on VAT is that we ought to be able to do what we want with it (to create much needed "tax competition" possibly, or even to abolish it as a single taxer like me would probably ultimately want. But every time anyone says anything about it we are told "you can't touch VAT - it's tied to EU rules" - I always presumed because some of it at least went towards the budget. But not alot compared with what each country collects by the looks of it.

On seignorage - I don't mind - but if you are sceptical, then the real alternative is a Hayek style completely privatised money system, which I don't mind either. What I really object to is that the currency apparently issued "in our name" on the faith and credit of the citizens, is actually privatised and unaccountable.

Seignorage reform would be a halfway house as it would make interest rates just a marketing tool for loan brokering banks, not an instrument of money supply and inflation control. Tighter money would come from withdrawing some from the system rather than just punishing people by making it officially more expensive, looser money by introducing some new money as the economy could absorb it without inflation.

Monetary reform is the natural counterbalance to LVT.

I'd also suggest that there's a difference between funding the EU administration and "assistance" payments made to areas for development.

Somehow though, I doubt any of these are actually on the radar at the moment - though they would clearly benefit the newer members without hurting the older members - something of a Holy Grail for EU finances!

UK Daily Pundit said...

I'll keep it short and sweet. Bollocks.

Cllr. Gavin Ayling said...

I'm with the uk daily pundit on this, the EU is not democratic aside from the token which is the EU Parliament. English people are already taxed without representation but an EU tax would be ridiculous.

I may support an EU tax for the sole reason that I think it would signal the end of the EU either by creating a democratic supra-national EU or it would force an exit from the EU for Britain.