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| 5 minutes read

EU Commission proposes to take tax raising powers. Is this a Covid power grab?

Amongst the fanfares of Ode to Joy and the sighs of relief as Ursula von der Leyden trumpeted "Europe's moment" by announcing a proposal for a recovery fund of €750bn, there was a quieter paper published, one which dealt with how the Commission proposes to pay for all this. The contrast in the publicity is stark, its almost like they didn't want us to notice.

The status of the EU as a treaty based organisation and not a federal state has always, partly, rested on the fact that it does not issue its own debt, and it does not raise taxes in its own name but instead relies on contributions from the Member States. Whilst the Member States retain the purse strings the EU is their creature.

How does this "Next Generation EU" proposal deviate from that position? 

"Next Generation EU" involves grants to ALL EU member states, anybody with eyes can see that if the central authority is granting money to all member states it cannot raise that money from contributions from those member states, that doesn't make sense. It needs to raise its own money.

The EU proposes to raise the €750bn on the capital markets repayable over 30 years. It then proposes to service that debt with the introduction of four (not three as stated in this article) new "own resources" (EU jargon for "EU controlled taxes"). Those "own resources" are not completely articulated but are listed as this:

(i) Extension of the Emissions Trading System based own resources to the maritime and aviation sectors to generate €10 billion per year

(ii) Tax or income stream based on operations of companies, that draw huge benefits from the EU single market, which, depending on its design, could yield around €10 billion per year

(iii) Carbon border adjustment mechanism to raise €5 billion to €14 billion per year

(iv) Digital tax on companies with a global annual turnover of above €750 million to generate up to €1.3 billion per year

It also contains the usual declaration about tax evasion/avoidance and how that must be eradicated (the EU seems pathological in its inability to distinguish the two).

It is clear from this that the EU has big ambitions and whilst it says that the income "could" be used to pay down the debt raised on the capital markets to mitigate the Covid slump, it does not say that these are predicated taxes which will disappear as soon as the debt is repaid. It is most likely the story will be exactly the same as the position with UK income tax, it "could" be used to pay off the debt raised to fight the Napoleonic Wars which was the motivation for its introduction, but its highly unlikely we are still paying off that debt.

The most worrying proposals are those which are the most vague, and there is plenty of vagueness here. It is certainly not clear what the proposal to raise €10bn from companies which "benefit hugely" from the single market amounts to. The figure of €750m turnover for the trigger of the digital tax seems rather arbitrary and will almost certainly be revised down as yet another crisis demands the EU intervene. The extension of Carbon Trading to aviation will undoubtedly kick an already weakened sector.

Who will raise these taxes? Will there be a central tax agency, possibly expanded from the groups which handle the central information exchange? Or will it be local authorities? What democratic oversight will there be? Does this mean increased powers for the EU Parliament? Or possibly more powers for the Commission and no democratic oversight increasing the already large democratic deficit which the Brexiteers made such a profit from?

But none of this means this is a power grab. Maybe the EU Member States, freed of the brake of free market Britain, are ready for this step? It is certain that the economic firepower of the Germans has been sorely tested over the last ten years. Mrs Merkel is weakened by illness, age and rising opposition at home. France does not have a Charles De Gaulle to defend its historic independence (despite the Portuguese Bloco Esquerda MEP Marisa Matias calling him "pequeno Napoleão" Macron is wedded to the idea of an expanded role for the EU). The rich countries are unwilling and unable to pay directly for the southern countries that they and their citizens view as spendthrifts, and its obvious that the capital markets will be less willing to lend to the EU (regardless of its credit rating, which is surely only a function of the credit rating of Germany) if it doesn't control its own purse strings. 

The thing that indicates that this is a "managed" release of the proposal, and the idea to raise taxes to pay for this debt is being downplayed, is this...

Here is the press release for the Next Generation EU proposal:

https://ec.europa.eu/commission/presscorner/detail/en/IP_20_940

It is full of positive statements about doing things in a fair way, promoting unity and promising sunlit uplands, apparently "Europe will arise more competitive, resilient and sovereign" (I'm not sure what more you need for a claim to statehood than that statement). The only reference to the proposed creation of four new taxes is this:

"To help do this in a fair and shared way, the Commission proposes a number of new own resources."

The link is to a pdf, no press release here, which couches the proposals in EU-jargon and complex charts.

The stage magician knows all about misdirection, the classic shout of "look over here" whilst he pushes the rabbit into the back of the box before the reveal. The EU is clearly doing the same. It doesn't want to talk about EU taxes, it wants to tell the people that it is their saviour. With a weakness at the heart of the nation states, that may well be what is required, but EU entities and individuals should brace themselves. This will mean more taxes, and, however it is dressed up, it will be driven by Brussels because Berlin and Paris are unable to take the lead.

There is some resistance from the Member States, and this may well be the day on which the Poles, the Hungarians, the Finns and the Austrians say "enough is enough". That battle will be played out behind closed doors and seems already to be centreing on whether the aid should be given by way of loans or grants not on how it will be repaid. We can only wait and see.

The money raised on the capital markets would be paid back over 30 years between 2028 and 2058, but not later. The Commission says it could be paid back in several ways: A carbon tax based on the Emissions Trading Scheme A digital tax A tax on non-recycled plastics www.bbc.com/...

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