This week the European Union’s Budget Commissioner, Janusz Lewandowski, again raised the issue of EU taxes. Some may argue it was just a political manoeuvre to fill the newspapers during the summer holidays. But to me it looks like an orchestrated attempt to move the issue up the agenda. Indeed, Herman van Rompuy argued in favour of EU taxes shortly after he became President of the European Council. It is therefore unsurprising that the matter is coming up regularly and with increasing intensity.
One reason for this debate is that the EU is looking for alternative income. Currently, it is financed by the contributions of member countries and import tariffs. Tariff income is declining, however, due to worldwide tariff reductions, and contributions by member countries can not be raised significantly in times of fiscal distress. EU taxes would be an independent source of income.
Yet there are good reasons to reject strongly such taxes. Firstly, they would be the first step towards fiscal union. Then, not only political power but also fiscal power would be concentrated in Brussels. National governments would gradually lose their influence and their ability to undertake policies based on their political preferences and suitable for their country’s particular needs. The process of competition among administrations for the best political and fiscal system would be undermined.
Secondly, EU taxes would strengthen the distributive character of EU finances. They can be seen as a path towards a transfer union, and distributive transfers would encourage moral hazard behaviour in receiving countries. Finally, if the EU can just increase taxes, it may be less likely to reduce its vast budget or abolish its unnecessary institutions.