BRUSSELS Nov 28 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
"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
"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.