Towards fairer and more growth-friendly tax systems
Taxation is one of the key policies monitored through the European Semester, the yearly cycle of economic policy coordination and monitoring of Member States progress towards the Europe 2020 targets.
The European Semester starts with the publication of the Annual Growth Survey, which sets the priorities to boost growth and job creation for the year to come, alongside recommendations for the Euro Area.
The yearly cycle culminates in late spring with the proposal of tailored advice to Member States - the country specific recommendations, which are then discussed by the European Parliament and approved by the Council.
What are the tax priorities for the 2017 European Semester?
The Annual Growth Survey 2018, published on 22 November 2017, set out the policy priorities for the EU as a whole. The European Commission published on 22 December 2017 the latest Tax Policies in the EU Survey. This report substantiates the priorities outlined in the Annual Growth Survey in the area of taxation and presents in a clear and accessible fashion the most recent reforms in Member States and the main indicators used by the European Commission to analyse tax policies in the context of the European Semester.
How does taxation feature in the country-specific recommendations for the 2018 European Semester?
Taxation is part of the proposed country-specific recommendations for many Member States, as well as in the Euro Area Recommendation. The recommendations for each country are based on the Commission’s analysis of the key tax policy challenges as set out in the country reports. The 2018 recommendations include the following tax issues:
- Addressing tax fraud, evasion and avoidance: Improving tax compliance requires a good balance between preventative measures that promote voluntary compliance and corrective measures such as audits and fines, and builds on a stronger administrative capacity, cooperation and legal framework.
- Boosting investment and innovation: Issues requiring policy action include designing better fiscal incentives for research and innovation, reducing the bias towards debt in the tax treatment of debt and equity and simplifying tax systems and tax collection.
- Supporting employment: Well-targeted labour tax cuts, in particular for low-income and vulnerable groups, can help to create jobs.
- Improving social fairness: The taxation system also has a role to play in reducing inequality and promoting social mobility, for example through the redistributive effect of the tax and benefit system.
What tax-related recommendations did the Commission propose in 2018?
Recommendation 2: […] Member States should pursue fiscal policies in respect of the SGP and which support investment and improve the quality and composition of public finances, also by making use of spending reviews and adopting growth-friendly and fair tax structures. Member States should take and implement measures to reduce debt bias in taxation and fight aggressive tax planning to ensure a level playing field, provide fair treatment of taxpayers and safeguard public finances and stability within the euro area. This includes continuing work towards the Common Consolidated Corporate Tax Base (CCCTB).
Recommendation 3: Implement reforms that promote quality job creation, equal opportunities and access to labour market, fair working conditions, and support social protection and inclusion. Reforms should aim at: […](vii) shifting taxes away from labour, particularly for low-income and second earners.
CSR 1: Improve tax collection and the efficiency of public spending, including by stepping up enforcement of measures to reduce the extent of the informal economy. […]
CSR 1: […] Improve the efficiency and investment-friendliness of the tax system. […]
CSR 2: Reduce disincentives to work more hours, including the high tax wedge, in particular for low-wage and second earners. […]
CSR 1: […] Limit the scope and the number of tax expenditures, and broaden the tax base. […]
CSR 3: Simplify the tax system, by limiting the use of tax expenditures, removing inefficient taxes and reducing taxes on production levied on companies. […]
CSR 1: [...] Introduce a recurrent property tax.
CSR 1: […] Shift taxation away from labour, including by reducing tax expenditure and reforming the outdated cadastral values. Step up efforts to tackle the shadow economy, including by strengthening the compulsory use of e-payments through lower legal thresholds for cash payments. […]
CSR 1: […] Reduce taxation for low-income earners by shifting it to other sources, particularly capital and property, and by improving tax compliance.
CSR 1: Improve tax compliance and broaden the tax base to sources less detrimental to growth. […]
CSR 2: […] Improve the design of the tax and benefit system to reduce poverty and income inequality.
CSR 2: Continue simplifying the tax system, in particular by reducing sector specific taxes. […]
|CSR 2: Reduce the tax wedge, especially for low-income earners, by shifting the tax burden to sources of revenue less detrimental to growth. […]|
CSR 1: […] Strengthen tax compliance and collection.
CSR 1: Address risks related to high household debt by gradually reducing the tax deductibility of mortgage interest payments or increasing recurrent property taxes. Stimulate residential construction where shortages are most pressing, notably by removing structural obstacles to construction, and improve the efficiency of the housing market, including by introducing more flexibility in setting rental prices and revising the design of the capital gains tax.
N.B. Belgium, Cyprus, Czech Republic, Denmark, Estonia, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Finland, and United Kingdom did not receive tax-specific CSRs in 2018. Greece has been under the European Stability Mechanism Stability Support Programme and did not receive CSRs in 2018.