EU Commission calls for tax shift away from labour, income

BRUSSELS Wed Nov 28, 2012 11:15am EST

BRUSSELS Nov 28 (Reuters) - European Union countries must shift taxation away from labour and income to taxing consumption and pollution to help the economy grow, the European Commission said on Wednesday.

"Economic studies show that certain types of taxes - such as those on labour and income - are more distortive, while others such as consumption and environmental taxes are considered to be more growth-friendly," the Commission said in its Annual Growth Survey.

"The Commission therefore advises member states to shift taxes away from areas that impede growth (labour, corporate taxes) towards more growth-friendly taxes (consumption, environment)," it said, stressing curbs on taxes for the low-paid.

"The Commission encourages member states to take further measures to improve the existing design of taxes in this area, including by adjusting the structure of tax rates on fossil fuels, indexing environmental taxes, or considering the abolition of reduced VAT rates on energy," the Commission said.

Governments should also put an end to favouring mortgages in their tax systems, as this contributes to creating housing bubbles like in Spain or in Ireland.

The Commission said EU countries should get rid of special reduced rates of VAT (Value Added Tax), and instead, lower the main rate of VAT, broadening the tax base.

"Studies show that if all reduced rates were removed, the standard rate could actually be lowered by up to 7.5 percentage points in some cases, without any impact on overall revenues," the Commission said.

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