Nicolas Sarkozy - French President."It’s the case for taxation: we haven’t gone far enough in harmonizing the taxes on businesses and economic activities subject to competition. The result is that States are allowed to indulge in destructive competition on tax to attract businesses to their countries by cutting corporate tax, sometimes to zero. Tax dumping, which is prospering under the unanimity rule isn’t acceptable inside the EU. We must be able to clarify the division of powers between the Community institutions and States, according to the principles of subsidiarity and proportionality."
[In Sept 2004] Sarkozy was in interventionist mode when he contended that low corporate tax rates in the European Union's 10 new member states were unfairly sucking jobs from the west. His solution was as simple as the supermarket price cut: either the low-tax E.U. nations raise their rates or risk losing billions in E.U. development aid (see Au Revoir Les Jobs). "I'm not against outsourcing per se, I'm just demanding that the competition driving it is fair," Sarkozy says. "Nations can't claim to be rich enough to do away with taxes, while also claiming to be poor enough to ask other nations to provide funds for them. As with insecurité, the experts say, 'Outsourcing is a good thing. It leads to progress. Don't worry about it.' But the nation is scared." Sarkozy now proposes to grant €1 billion in tax breaks to companies that keep outsourceable manufacturing and service jobs in France, or relocate them to one of 20 "competitiveness zones" to be established around the country.
Time Magazine Oct 3, 2004
Pressure for EU tax harmonisation 2005-2006
The long and divisive EU budget negotiations in December have convinced some EU leaders that the EU should develop its own method of raising revenue, rather than relying on contributions from member states. Jose Barroso hinted as much in December saying that the EU needed a “system that would go beyond negotiations between countries”.
The measure has also won support from Hienz Fischer, the Austrian President, who said “if the EU had its own resources, it would be easier to negotiate its budget and therefore I support the idea.” EU Finance Commissioner Joaquin Almunia has also lent his support to the idea. He argued that the creation of a “community revenue” would help overcome divisions between member states over how much they contribute to the EU budget.
Tax rates have also become an issue for some on the Left in both Germany and France who have begun to complain about alleged “tax dumping” in Eastern European states. They argue that the lower tax rates favoured in many new member states give companies based there an unfair advantage, threatening jobs in ‘old’ Europe.
French Interior Minister Nicolas Sarkozy has contended that “tax dumping and social dumping must not be accepted within the EU. A country cannot claim to be rich enough to abolish its taxes and poor enough to receive European structural funds.” (European Review, 5 January)
The socialist German Finance Minister Peer Steinbruck went one step further urging new EU member states to raise their taxes and ensure "fair tax competition" among the 25 members of the bloc.
He told the German daily Die Welt that tax cuts in many of the new EU member countries have "nothing to do with fair tax competition and place a burden on German jobs… It cannot be, that some countries demand more funds from the EU budget while on the other hand failing to improve their own tax basis". German business groups responded arguing that the only way to stop German companies relocating would be to make the German tax rates more internationally competitive. (29 December)
Open Europe Bulletin
