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Weeklog Dennis de Jong: Brussels wants to get rid of lower VAT rates

November 4th, 2012 • Earlier this month there was a brief announcement from the European Commissioner for Taxation Algirdas Šemeta to the effect that he was considering presenting a proposal to abolish the lower VAT tariff which member states are allowed to levy on certain goods and services. Only an announcement, but one which could have enormous consequences for people on low incomes, as it is necessities which in the Netherlands carry the reduced VAT rate of 6%. What, then, can have possessed this Commissioner? It is unfortunately just the latest example of a policy which demonstrates that Brussels has lost all contact with reality and with ordinary people. Here once again the SP has its work cut out. We must not allow things to get that far.

Dennis de JongDaily, we see the prices of products rise in the shops, partly through ordinary inflation, but also, thanks to this government and its immediate predecessor, due to an increase in VAT from 19% to 21%. Even if this applies to so-called luxury products, it also includes washing powder and that is surely not a luxury. The lower tariff is aimed at ‘ordinary’ necessities and this is what Commissioner Šemeta wants now, in whole or in part, to abolish. The price increases which will be the direct result will be sizable: from 6% to 21% VAT makes a considerable difference.

Šemeta employs two arguments to back this: it would help to reduce the member states’ budget deficits; and it could remove competition distortions from the internal market. The first argument is invalid, because it must first and foremost be the member states themselves who decide how they can reduce their deficits, as they will then be in a position to take account of the effects any measures may have on incomes, a matter over which the European Commission has no mandate. The second argument is of course in any case nonsense, because in every member states the lower tariff is applied to certain products without reference to whether these are domestically sourced or imported from elsewhere in the EU. That there are member states who apply the lower rate to some products while others do not changes nothing, therefore, in terms of relations of competition.

For the time being the commission is doing no more than organising a round of consultation, so we don’t need to fear that Šemeta will be launching his proposals right away. It’s rare, however, following such a consultation, for the Commission not to push on with its original idea, being generally a better talker than a listener. So for the SP there is reason enough to set things in motion by questioning our own national government on the issue, as well as seeking support in the European Parliament for a campaign against this misbegotten idea.

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