Fiscalit et modle social europen Partie II

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Fiscalité et modèle social européen (Partie II)

• The EU economic recovery plan tax policy aspects
• EU member states main tax policy measures for
  economic recovery
• Fiscal exit strategy
• Tax policy lessons from the crisis

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The EU economic recovery plan tax policy aspects
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The European Economic Recovery Plan

• Injection of purchasing power into the economy.
  The European Commission proposed on 26 November
  2008 a budgetary impulse of 200 billion (1.5 of
  GDP)
• Comprehensive programme to direct action to smart
  investment. Need to help Europe to take advantage
  when growth returns so that the European Economy
  is in tune with the needs of the future
• Focus on solidarity and social justice

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The budgetary stimulus

• It should be timely, temporary, targeted
• Co-ordination needed to multiply the positive
  impact and ensure long term budgetary
  sustainability
• It should mix revenue and expenditure instruments
  
• Need to ensure reversibility of measures
  increasing deficits in the short term
• Improving budgetary policy making needed in the
  medium-term
• Ensuring long term sustainability of public
  finances dealing with the rise in age-related
  expenditure

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Tax measures considered in the plan

• Lower personal income taxes
• Reduction of employers social security
  contributions on lower incomes to promote the
  employability of lower skilled workers
• Temporary reductions in the level of standard VAT
  rates
• Reduced VAT rates for labour-intensive services
• Reduced VAT rates for green products and services
  aimed at improving in particular energy
  efficiency of buildings
• Reduction of property taxes for energy-performing
  buildings
• Reduction of car registration and circulation
  taxes for lower emission cars

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EU member states main tax policy measures for
economic recovery
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Introduction

• Fiscal stimulus packages, part of the policy
  response to the crisis together with easing
  monetary policy and rescue of financial
  institutions
• Total fiscal impulse amounts to about 1,8 of
  GDP, including increased expenditure and tax cuts
• A majority of Member States have cut taxes, but
  some (Latvia, Lithuania or Ireland) have been
  forced to increase them due to their budgetary
  position

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Personal income tax rates
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Personal income tax base (allowances, credits,
etc. )
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Corporate income tax rates
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Corporate income tax base (allowances, credits,
etc. )
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Social security contributions rates
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Social security contributions base
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VAT rates
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VAT base
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Taxes on energy
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Taxes on tobacco and alcohol
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Summary
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Conclusions

• Member States measures broadly in the range of
  the European economic recovery plan
• More measures affecting the PIT, CIT and VAT
  bases than rates
• No cut of standard VAT rate to boost consumption,
  except temporarily in the UK
• Clear trends towards increasing the taxes on
  alcohol and tobacco
• Some measures, even if legally adopted for a
  limited period of time may prove difficult to
  withdraw

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Fiscal exit strategy
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The need for an exit strategy

• Deficit set to reach 6 of GDP on average in the
  EU in 2009
• Debt to GDP ratio expected to jump to 80 of GDP
  in 2010 and 120 in 2020 on the basis of
  unchanged policies
• Long term challenges reduction of working age
  population will start in 2010 increase in age
  related public expenditures

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The need for an exit strategy (II)

• Still too early to start a broad-based
  consolidation of public finances premature
  fiscal contraction could lead to a deterioration
  of the general economic situation
• A credible exit strategy can underpin confidence
  among households and financial markets and keep
  inflation expectations under control

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Elements of a comprehensive fiscal exit strategy

• Coordinated withdrawal of exceptional measures
  taken in order to mitigate the effects of the
  crisis
• Further consolidation in order to reverse
  unsustainable debt trends. An effort of more than
  0,5 of GDP annually would be required
• Structural reforms to improve potential growth
  e.g. in relation to labour markets, knowledge
  society, green technologies
• Strengthening of national budgetary frameworks
  complementing the implementation of the Stability
  and Growth pact

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Tax policy lessons from the crisis
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Tax distortions to financial policies (I)

• Widespread practice of countries to allow
  interest payments but not the cost of equity
  finance as a deduction against corporate income
  taxes
• The consequence is a bias towards debt finance
  which is greater if the effective corporate
  income tax rate is higher

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Tax distortions to financial policies (II)

• Personal taxes on interest, dividends and capital
  may also affect the choice between debt and
  equity finance
• According to the IMF, empirical evidence suggests
  that tax distortions have caused leverage to be
  substantially higher than it would have been
  under a neutral tax system

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Possible policy responses (I)

• No sound reason to give a systematic tax
  advantage to debt finance
• One possibility is to limit the extent of
  interest deductibility e.g. through thin
  capitalization rules or comprehensive business
  income tax
• The alternative is to keep interest deductibility
  and allow a deduction for the notional cost of
  equity finance (Allowance for corporate equity or
  notional interests)

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Possible policy responses (II)

• ACE leads to a revenue loss but also to
  efficiency gains expected to benefit labour more
  than equity holders
• Emerging evidence suggests that the incidence of
  corporate income taxes falls largely on workers
  through lower investment, lower productivity and
  wages

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Housing (I)

• The end of the price bubble in the US housing
  market has been an important factor triggering
  the financial crisis
• With decreasing house prices, credits and
  securitized financial products incorporating them
  became assets leading to a worldwide credit
  crunch
• Taxation of housing is therefore a potentially
  relevant issue

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(No Transcript)
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Housing (II)

• Housing is frequently subject to special tax
  treatment
• Imputed rents and capital gains on primary
  residence are rarely taxed
• Mortgage interest relief generates distortions by
  providing an incentive to leverage against
  housing and invest own funds in other assets

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Housing (III)

• Favourable tax treatment likely to be capitalized
  in house prices, at least in the short term and
  can increase housing price volatility
• No evidence however that taxation was the main
  driver of house prices in the last decade (e.g.
  strong price increases also in countries with
  unfavourable tax treatment)

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Housing (IV)

• There is evidence that favourable tax treatment
  for home ownership leads to higher ratios of
  mortgage debt
• Reducing tax distortions would help avoid
  macroeconomic imbalances and increase efficiency
• Timing needs to be carefully considered given
  current problems in the housing sector