Taxation is currently an intensively discussed issue in the EU. The versatility of the debates ranges from gender-discriminating tax systems at an individual level up to tax evasion of large companies. Taxation systems need to change in many dimensions, most importantly, however, they have to become fairer.
In welfare states, taxes and fees provide for the financial basis of public spending. At the same time taxes may act as a redistribution mechanism, hence reducing existing socio-economic differences by targeted progressive or degressive taxation and thereby contributing to a fairer and equitable society. Whether or not this redistribution moment takes place depends on the specific design of taxation systems.
As the following chart clearly shows, labour taxation accounts for almost half of the national tax revenue across the EU. In contrast, capital and property tax rates are much lower.
Source: Gunnarsson, Schratzenstaller & Spangenberg (2017): Gender equality and taxation in the European Union
This distribution of the tax burden has a significant effect on social structures. On 30 May, a study (the chart above is included therein), was presented in the FEMM Committee of the European Parliament, which addresses the gender specific effects of tax systems. As many other policies, taxes are not gender neutral. Whilst there are nearly no taxes, that are directly discriminating against gender, based on existing social, cultural, economic and ecologic inequalities the exact structures affect women and men differently. Hence, the current systems result in a deepening of inequalities, which means that redistribution is only taking place from bottom to top but not vice versa. The high taxation of labour in contrast to the lower taxation of capital or wealth should have a growth promoting effect. In fact, however, according to the authors of the study, they make societies more unequal, and thereby put a barrier against economic growth. Lower taxation on wealth has a positive effect on those who are considerably wealthy. In Austria, as in other Member States of the EU, men own more wealth than women. Female single households in Austria have about 40 % less wealth than male ones. The decreasing progressive taxation of income also has a negative impact on women, but not on men; this is due to the fact that men – due to the persisting gender pay gap – are still earning more for the same and equivalent work. In some Member States, secondary earners, due to regulations such as income splitting, hence a combined calculation basis of income taxation at a married couple level ignoring income differences, face a higher tax burden, which acts as a barrier to seek employment in the first place. Here too, because of the unequal distribution of work in respect of care, housework and child care, women are over-proportionally affected. In turn, lower tax rates on capital and income from capital transactions are above all benefiting men. What is needed according to the study authors, is more transparency, more data and also more attention paid to existing inequalities, to ensure that redistribution from bottom to top can be transformed into fairer distribution from top to bottom.
An important issue, which is also an obstacle for taxes to act as a redistribution mechanism, is tax avoidance by large companies, which in doing so, significantly reduce countries' tax revenue. The European Commission, under the leadership of Jean-Claude Juncker, has presented 12 proposals on combating tax avoidance, many more than any previous Commission has ever suggested. However, at the same time, Juncker as former Finance Minister and subsequent Prime Minister of Luxembourg at the beginning of the 2000s has been accused of having significantly contributed to enrich Luxembourg on the basis of tax competition, whilst at the same time weakening the European fight against tax avoidance. His present role as Commission President and the active fight against tax avoidance by the Commission did not protect him from having to explain his previous activities before the European Parliament’s PANA Committee of Inquiry on 30 May. In spite of critical questions by MEPs, Juncker did not assume political responsibility for past Luxembourg transactions and wished to be judged by his current activities in the Commission. He was in favour of tax competition, however, it needed to be fair tax competition, and the Commission was now trying to implement this. Juncker also presented the prospect that the currently existing principle of unanimity in the Council of the EU and thereby among Member States regarding questions of tax, might be amended in the future, to make it easier at EU level to create Pan-European tax regulations. Thereby, national exemption clauses, such as the ones for Luxembourg, Belgium and Austria in 2003’s Interest Directive, can be ruled out from the very beginning.
The path towards fair taxation at EU level will remain a long one; however, it is a path on which currently many different steps are taken. For example, during the upcoming parliamentary plenary week in Strasbourg, MEPs are going to vote on country-specific reporting and the Common Consolidated Corporate Tax Base is also heavily debated. Discussions have not yet come to an end and most of the topics are not yet jointly considered. However, a tax system, which is fair for all and works as a redistribution mechanism from the top to bottom, has to consider both socio-economic differences in societies and that everyone pay their taxes where they generate their profits.