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Matthew Vella
French Finance Minister Nicolas Sarkozy’s proposal to have corporate tax harmonised across the EU faces surmounting opposition from new EU member states who jealously guard their freedom to offer multinationals and industries a favourable tax regime in their countries.
The French have signalled their resentment after Sarkozy announced proposals to have EU corporate tax harmonised all across the market, in a bid to counter de-industrialisation in France, which he said was being wooed over towards the Eastern European countries with lower corporate taxes.
Parliament Secretary Tonio Fenech was also present at the Council for European Economics and Finance Ministers of the 25 EU Member States where he affirmed that Malta was not in favour of the proposals set forth by the Commission.
“Malta strongly believes that taxation should continue to be a matter of national sovereignty, and that the Commission’s proposals to have a common tax base and corporate tax rates impinge on this. Malta also believes that the proposals will not eliminate harmful tax practices, or reduce any administrative burden on companies. It was agreed that this matter requires further study at the technical level in order to provide a better framework for policy making.”
Corporate taxation across the EU varies from several extremes, such as that of 40 per cent in the UK to nil in Estonia. With corporate tax rates in Malta being relatively high - at 35 per cent, the fourth highest in the EU – the Malta Council for Economic and Social Development has proposed in its National Competitiveness report to have the Maltese government look towards “opportunities” at having corporate tax reduced in a bid to stimulate economic growth. Currently government revenue from corporate tax is some Lm75 million. According to the MCESD, at lower tax rates, economic activity would be further stimulated but government revenue would start to fall, because the effect of the lowering of the rate would outweigh that of the stimulation of economic activity.
The MCESD report recognised that with an average corporate tax rate of 17.1 per cent in the new Member States, this showed that lower corporate tax rates are “an essential determinant” of investment and economic growth, where according to international averages, as corporate tax rates are lowered by 1 per cent, GDP growth increases by 0.17%.
The informal debate on the Stability and Growth Pact among finance ministers took place in Scheveningen on 10 and 11 September after the pact was suspended following the crisis brought upon by intransigent France and Germany, the two states which refused to pay their dues after breaching Maastricht’s three per cent deficit rule. Ironically, Germany and France were the pact’s strongest supporters to have the deficit rule enforced for countries such as Portugal, Spain and Italy which were likely to breach the limit.
Initial discussion at the ECOFIN focused on the Commission’s proposals for changes to the Stability and Growth Pact. The Ministers agreed that the Commission’s proposals provided a good basis for a review of the Pact that could lead to its strengthening, clarification and better implementation.
The Pact has proven its usefulness in anchoring budget deficits, providing a basis for comparison of the deficit levels seen during earlier slow downs and compared to other regions, contributing to low inflation and low interest rates.
The three per cent deficit and the 60 per cent debt criterion in the Pact remain important for all Member States although it is likely that getting in line with the rules will now take the form of political peer pressure rather than the imposition of fines, as well as taking into consideration the economic state of the Member States concerned.
Malta agreed that a rules-based system remained the best guarantee for commitments to be enforced and for all Member States to be treated equally.
matthew@newsworksltd.com
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