What sort of taxation in the age of globalisation?

The plain-spoken comments that I made briefly at the inter-parliamentary meeting in Brussels on 8 May have stirred up reactions, particularly on the Internet, which have prompted me to add the following clarifications.

1 – Within the European Parliament, I am responsible for proposing a reform of the way in which the Community budget is financed. Since this matter falls within the competence of the Member States (the European Union does not have the power to levy taxes), I have proposed a new working method, which involves national parliaments in the discussions and debates conducted in the European Parliament. Two working meetings have taken place on the subject, including the one on 8 May. A third is scheduled for 21 June. In addition, I have travelled to six national capitals for an exchange of views on the spot, and another half-dozen national parliaments have been pleased to make a written contribution.

This work is entirely public and the procedure is completely transparent. All the working documents and minutes of the meetings are available on the European Parliament website and on my personal website. Any conclusions can enter into force only when agreed by all the governments of the Union and ratified by all the national parliaments. Our aim is to be ready for the 2008 date proposed by the governments: on that date the entire European budget system, in terms of both revenue and expenditure, will have to be thoroughly reviewed. The European Commission has been invited to make new proposals on the basis of the proposals that may be made between now and then by national parliaments and the European Parliament.

At this stage three options have been raised by the participants and are being studied in greater depth: maintaining the current system, based on contributions from national budgets, while making it fairer, simpler and more transparent; directly allocating existing national taxes to the Union; and allocating to the Union taxes designed to support Community policies, particularly in the field of the environment (ecotaxes).

In order to offer full reassurance to tax-paying citizens, I have proposed two basic principles: the principle of sovereignty, where fiscal sovereignty must remain with the Member States, and the principle of neutrality, according to which, all other things being equal, the transfer of a charge or a tax from the Member States to the Union must not under any circumstances worsen the total tax burden. The cost of building Europe remains constant.

2 – In connection with this exercise, I have been wondering, in a personal capacity, about the long-term development of taxation, not at European level, but nationally and internationally.

Each historical era, each stage of economic development, has had its own system of taxation, corresponding to the technical resources and the political choices of the time: land taxes when all wealth appeared to lie in the land, traffic duties, various forms of poll tax, then, with the advent of democracy and the welfare state, progressive taxes on income and VAT. Now, at the beginning of the 21st century, in most of our States the tax systems appear too cumbersome and infinitely too complex, they penalise investment and job creation and are very ill-suited to a world now characterised by very high mobility of capital, information, factories, labour and skills.

So the question is whether an economy based largely on dematerialised and globalised services can continue exclusively to rely on methods of financing policies for the general good that were conceived at the time of coal, steel and triumphant protectionism. Can an economy which is now characterised by an explosion in value-creating exchanges across national borders generate fiscal resources capable of reducing those from current taxes that penalise investment and employment?

This question is nothing new – for twenty years or so it has inspired the thinking around the ideas of James Tobin. These ideas related primarily to exchanges of capital. Several countries have introduced a levy on air transport or on goods transportation by road. Others are interested in CO2 emissions trading. Can the hundreds of new services now offered as a result of the revolution in communication technologies be part of this process and, if so, how? It is not outrageous to ask this question. On the contrary, it would be outrageous if such questions were not asked on principle or, of course, if bad answers were given. This latter risk is low, however, if it exists at all. Any innovation in this sector will require a global consensus.

I should like to stress that, as far as the immediate future is concerned, these ideas are not on the table at European level. They are not mentioned in the instructions that we have given to the experts working for us, so Internet users who have been disturbed by vague or sketchy press reports can be reassured. They can also use their personal skills and creativity to find ways to use the technical tools of the 21st century intelligently in response to the enormous need for global solidarity today.

Alain Lamassoure, 30 May 2006.