Tuesday, February 20, 2007


EU's deteriorated view on tax competition has already been deeply rooted in the minds of the EU policymakers in Brussels. But there is an exception - a commissioner that is being aware of high tax jurisdiction and its negative impact on economic growth, productive behavior, job creation and international competitiveness. Most of his colleagues prefer higher tax rates to low tax jurisdiction. Recent agressive attack on Swiss cantons and some companies headquartered there, is an example how the EU attempts to enforce seriously damaging features through which the doing business, competitive business frameworks and open international markets would suffer from lower market capital formation which is, essentially, one of the foremost indicators of investors' confidence, dynamic markets and growth potentials. Higher taxes boost government spending while it has been empirically proven that greater spending leads to lower growth as the curve, depicting the ratio relationship between spending and economic growth, yields downward. When it does so, it leads to incentive traps, demotivation of households and enterprises, increasing inefficiency and significantly higher corruption rate.

Charlie McGreevy, Internal Market Commissioner, outlined his position on taxation within the European Union at the Irish Institute of Taxation, suggesting that higher taxes feed fatter government:

"Some see taxation as a means of making society more equal. Of levelling down. Of limiting the upside rewards that go with taking risk or working hard. I don’t. I see it as necessary to help those who can’t help themselves and to provide services or infrastructure that is necessary for economic development but that the market alone can’t economically provide. I don’t see taxation as meritorious in its own right. I believe taxes – of all kinds - should be kept as low as possible and that the pressure to get them down should be relentless. I believe also, where there is a choice on how to levy taxes, preference should be given to levying them on spending. Taxes on income are taxes on effort, work and entrepreneurship. Taxes on capital are taxes on investment and risk taking. But it is effort, work, entrepreneurship, investment and risk taking that we need to continue to grow our economic base."

Link: Charlie McGreevy: Higher Taxes Feed Fatter Government, Irish Institute of Taxation, 2007

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