[OPE-L] Geert Reuten on tax competition

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Sat Sep 01 2007 - 08:20:52 EDT

(Socialist Party senator Geert Reuten, "On the eve of international tax competition? Dutch taxes 1970-2004 in international perspective", excerpts translated from the Dutch Socialist Party journal "Spanning", Vol. 8 no. 10, October 2006, p.6-8). 

"The essence of economic globalisation in the last 25 years is that governments made it legally possible that capital could be freely invested from one country to another. Capital flows to the country where the profit expectations are most favourable. One of the many factors which plays a role in this, is the tax structure of a country. Governments have, with said laws, proclaimed that countries must now compete to attract capital. In fiscal terms, this is called tax competition. (...) 

Since the 2000 EU-summit in Lissabon, the EU administration encourages member countries to lower taxes on labour. This is a good plan. 

Calculations show that every 1% drop in these taxes leads to an increase in employment of nearly 1% and an increase in GDP of 0.8%. In this regard, the Netherlands performed relatively well in the decade 2005-2004. The tax rate applying to wages declined by 4%, while in the same period the average rates of the EU-15 stayed almost the same. 

A lowering of the tax on salaries has as a consequence that the government gains less tax revenue. This declining income can in principle be compensated with raising indirect taxes on consumption and/or the direct tax on capital (tax on profits an/or capital income of individuals). From table 1 it is clear that the Netherlands increased the tax levy on the two last-mentioned categories with respectively 1.4% and 7.4%. (...) 

If we relate the Dutch changes in taxing labour to the total tax revenues of the state, we can establish that the lowering of the tax on labour is primarily caused by the fact that the government imposes lower social levies (...) lower revenues then translate into cuts of welfare provision. If we consider the data on tax rates on capital income, we have to conclude that the widely predicted tax competition in this area still has to start. Various organs of the EU indicate that tax reduction must together with reforms of welfare provision. This is however not a law. But the traffic in capital has been legally liberalised. 

Wage costs (including tax on labour), the price of consumer items (including tax on them) and taxes on profits are, for companies, ultimately an interconnected whole: consumption prices influence real wages, low wage costs usually increase profits, and with relatively high profits, the tax on profits can be of secondary importance. The liberalisation and progressing economic globalisation mean that companies can increasingly play off the population of one country against another. They can do this, because governments neglected to make sufficient mutual agreements about the rules to which companies have to conform before they began with the liberalisation; and also because trade unions do not coordinate workers' rights sufficiently on an international scale. 

This affects not only the rich countries in the world. The bidding-down of rich countries means that poor countries have to reduce taxes even further, so that the population of poor countries can forget about any perspective of funding social provisions."

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