CONTINUEThis site uses cookies. By continuing to browse this site you are agreeing to our use of cookies. Find out more.
  1. Front Page
  2. Features
  3. Taxes On The Rise in Austerity Europe

Taxes On The Rise in Austerity Europe

By Editorial
August 18, 2011

The debt crisis in the eurozone, which seems to worsen by the day, has prompted a fresh wave of austerity measures across the European Union in recent days as governments seek new revenues to replenish rapidly-emptying national treasuries, resulting in proposals for new or higher taxes in several member states.

Given Italy's particularly precarious economic and fiscal situation, Prime Minister Silvio Berlusconi and Finance Minister Guilio Tremonti have had to react swiftly to the growing crisis, leading to the presentation of an anti-crisis package last week, several days before it was due to be announced. The measures will impose spending cuts and tax hikes to produce a further correction of Italy's fiscal deficit of EUR45.5bn (USD64.8bn) in two stages: EUR20bn next year; and EUR25.5bn in 2013. Tax measuresinclude the harmonization of taxes on investment income, higher dividend and capital gains taxes, a "solidarity contribution" (in other words new top rates of tax) on personal income and an increase in tax paid by energy companies.

Spain, the other major economy teetering on the brink, has been unable to agree new austerity measures to stave off the threat of a default. With comprehensive reforms seemingly unlikely to materialise due to friction between political parties, the country's Finance Minister, Elena Salgado has announced unambitious measures aimed at saving the government EUR5bn, including one which will reschedule corporate tax payments for 2011. Further fiscal reforms are expected soon, but with Prime Minister Jose Luis Rodriguez Zapatero having seemingly thrown in the towel and having called an election for November, major reforms may be deferred until 2012, although Spanish opposition party leader, Mariano Rajoy, says that he would not increase taxes if elected.

Even France is looking vulnerable, with President Nikolas Sarkozy calling on the major political parties to unite around a deficit reduction plan which could see tax breaks reined in yet further. Finance Minister François Baroin felt able to rule out increases to 'compulsory levies' such as income tax and VAT, but offered savings from public spending cuts. There is doubt however over the adequacy of these proposals given that France's 'AAA' credit rating is seemingly under threat.

The crisis has now spread to include Cyprus. Following hot on the heels of a plea by the Bank of Cyprus that the government put in place a fiscal consolidation plan - and swiftly - to calm growing fears that the island will be the next Eurozone member to require a bailout, Finance Minister Kikis Kazamias duly responded by announcing hikes to value-added tax and personal incomes, and public sector pay cuts, although parliamentary approval of the measures is far from certain. Opposition parties think they are too feeble.

In Scandinavia, the developing eurozone crisis has forced the governments of Sweden and Finland to rethink their budget policies.

In a recent press conference, Swedish Prime Minister Fredrik Reinfeldt announced that planned tax cuts will be put on ice due to the uncertainty surrounding the Eurozone, while Finnish Prime Minister Jyrki Katainen has warned that new tax increases or spending cuts could emerge from government budget talks scheduled for September.

As a key member of the EU, the UK is by no means immune from events in the eurozone, but for the moment at least has the luxury of looking on at the debacle from a distance as something of an interested bystander. While the coalition government inherited a massive budget deficit from the previous Labour government, Prime Minister David Cameron can at least be thankful to his predecessor Gordon Brown for not taking the country into the euro! Here, the debate has focussed on taxation for the wealthy, and in particular the 50% top rate of tax - another inheritance from Labour. But while Chancellor of the Exchequer George Osborne has been making encouraging noises about cutting this tax, he appears to be heading for a major clash with his Liberal Democrat coalition partners over the issue.

The scale of the crisis has inspired some radical new ideas from Sarkozy and German leader Angela Merkel, both of whom are warming to the idea of a 'European Finance Ministry' which would assume some control over the fiscal policies of eurozone members. The crisis has also crystalized their support for an EU financial tax and given fresh impetus to proposals for a common EU tax base.

With the crisis in Europe so far from resolved, it seems very likely that hard-pressed taxpayers in the EU have got little to look forward to other than a winter of discontent.


Tags: business | European Union (EU) | value added tax (VAT) | sales tax | corporation tax



Back to Features

Tax-News Reviews

Cyprus Review

A review and forecast of Cyprus's international business, legal and investment climate.

Visit Cyprus Review »

Malta Review

A review and forecast of Malta's international business, legal and investment climate.

Visit Malta Review »

Jersey Review

A review and forecast of Jersey's international business, legal and investment climate.

Visit Jersey Review »

Budget Review

A review of the latest budget news and government financial statements from around the world.

Visit Budget Review »

Stay Updated

Please enter your email address to join the mailing list. View previous newsletters.

By subscribing to our newsletter service, you agree to our Terms and Conditions and Privacy Policy.

To manage your mailing list preferences, please click here »