EU proposes EU-wide VAT

Danno

http://www.rte.ie/news/2010/1019/eurozone-business.html

A shoe in the door for a federal tax down the line?

View

If I remember correctly, the current system of funding the EU involves the member states collecting VAT and sending a small portion of it on to the EU. As such, it means that part of the VAT you pay goes to the EU indirectly (i.e. via the member state).

I would personally view the issue as being a bit like funding local government - whether you pay taxes directly to local government or indirectly (i.e. via central government) is ultimately largely irrelevant. It only really matters if the rate of taxes you pay varies depending on the method used that matters to most people.

The main advantage of paying directly, in both cases, that I can see is that it might encourage people to sit up and start paying attention as to where, and how, their money is being spent. The main disadvantage would be the possible higher cost of collecting the taxes concerned.

Scofflaw

View wrote: »

If I remember correctly, the current system of funding the EU involves the member states collecting VAT and sending a small portion of it on to the EU. As such, it means that part of the VAT you pay goes to the EU indirectly (i.e. via the member state).

I would personally view the issue as being a bit like funding local government - whether you pay taxes directly to local government or indirectly (i.e. via central government) is ultimately largely irrelevant. It only really matters if the rate of taxes you pay varies depending on the method used that matters to most people.

The main advantage of paying directly, in both cases, that I can see is that it might encourage people to sit up and start paying attention as to where, and how, their money is being spent. The main disadvantage would be the possible higher cost of collecting the taxes concerned.

As far as I recall from when this was originally under discussion, the mechanism would actually be exactly the same as now, with the Member States collecting, but, from a legal perspective, set by the EU, and appearing on tax bills as such. Whether the Member States would agree to let the Commission set the rate - assuming they agree to levy such European taxes in the first place - is pretty doubtful.

The change from the current position in respect of VAT, where the EU budget is paid partly out of a VAT levy, would be first and foremost constitutional, in that although it would still be the Member States who agreed such a tax, the body levying it would be the EU. Secondly, given that the intention is to replace the current GNI contributions, it would obviously involve more of the VAT going to the EU than currently does - traded off against a reduction in the GNI payments:

In 1988, Member States’ contributions, based on their GNI, represented 10% of the EU budget, these days they amount to about 70%. Not only does this go against the spirit of the Rome and Lisbon Treaties but this gave birth to the bitter debates about “net contributors” and the complex concepts of rebates with the consequences of favouring instruments with geographically pre-allocated financial envelopes rather than those with the greatest EU added value. The Commission therefore puts forward the option of reducing Member States’ contributions by abolishing the VAT-based own resource and progressively introducing one or several new own resources as a replacement. Possible candidates for new own resources could be a share of a financial transaction or financial activities tax, auctioning of green house gas emission allowances, an EU charge related to air transport, a separate EU VAT rate, a share of an EU energy tax or of an EU corporate income tax.

Personally, I suspect that anything that involves taxes being levied directly by the EU on Member State citizens is a non-runner, since the constitutional precedent it would set has extremely large implications - it's rather more than a "shoe in the door" for a federal tax, it would be a federal tax. For exactly that reason, it may be something of a stalking horse - the Tobin tax, air transport, or emissions auctions seem more likely real candidates, even if they're technically more complex and up against vested interests in the Member States themselves.

cordially,
Scofflaw

Danno

Thanks for the reply. I really think the EU should be looking at collecting taxes to pay for hospitals in the line of the following thought.

Say 20,000 Irish people retire to Spain, Portugal, South of France etc... then taxes collected from Ireland should be used to support hospitals caring for these elderly people of ours, not fair on the taxpayers of these countries to be supporting our elderly just because they decided to retire in warmer climes!

southsiderosie

Danno wrote: »

Thanks for the reply. I really think the EU should be looking at collecting taxes to pay for hospitals in the line of the following thought.

Say 20,000 Irish people retire to Spain, Portugal, South of France etc... then taxes collected from Ireland should be used to support hospitals caring for these elderly people of ours, not fair on the taxpayers of these countries to be supporting our elderly just because they decided to retire in warmer climes!

Not sure about other countries, but I think Spain has reciprocal agreements with the UK and Germany about pension transfers and medical cards. It's been a retirement site for Northern Europeans going on 40 years now, so they long ago figured out how not to be financially liable for everyone else's expensive old people!

the groutch

when the people were being bullied into voting yes to lisbon the 2nd time round, the no side said this would happen.