More Benefit Reforms Needed Says European Commission

by Ulrika Lomas, Tax-News.com, Brussels

15 October 2001

The Directorate-General for Economic and Financial Affairs of the European Commission published a paper last week on labour markets and the recent progress made by EU Member States in reforming their tax and benefit systems. The paper suggests that while EU states have started to ease the tax burden on labour, progress on reform in general has been unequal between the tax and benefit systems.

The paper concludes that emphasis has clearly been on the tax side while benefit reforms have mostly been relatively minor, and without adequate attention to the interaction between tax and benefit schemes.

By reforming the tax and benefit systems, EU members hope to achieve the goal of full employment, and the Commission argues that it has become more urgent to speed up reforms of tax and benefit systems in order to increase labour supply and reduce structural unemployment. The paper calls for reforms aimed at making work pay to take a more comprehensive approach, including a review of the interaction between tax and benefit systems and their joint incentives to work.

In general, states the Commission, 'further efforts are needed to reduce the overall generosity of benefit schemes, including eligibility rules, and to strengthen their interaction with active labour market policies in order to enhance the efficiency of active policies. This strategy could help to move people from benefit dependency to work, while preserving an adequate level of social protection for those in need.'

See the full text of the European Commission paper at http://www.europa.eu.int/comm/economy_finance/document/ecopap/ecp160en.pdf

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