International

This week I received a study which revealed that VAT is being systematically increased across the member states. According to this study, such increases are leading not only to more inflation and less economic growth, but also to an often forgotten effect, a reduction in the purchasing power of those on the lowest incomes.

Member states which during the present economically severe times elect to increase indirect taxes in the form of VAT are at one and the same time conducting an incomes policy, one which spares the highest earners and imposes burdens principally on those on the lowest incomes, because these are the people who are obliged to spend a greater share of their revenue on the purchase of products. This phenomenon affects principally the weaker Eurozone countries, so it’s no wonder that it is not only the crisis itself but also the crisis measures taken by their governments that are making the poor ever poorer while affecting the rich to a far lesser extent. It would be a fine thing if European Commission president José Barroso, who of late has been full of talk of the need to keep in mind Europe’s ‘social values’, would once again give such countries a little ‘advice’. Too often the Commission continues to promote VAT increases instead of a drive to reduce tax evasion and an increase in tax rates for the highest earners.

The European Parliament library produces for the most part studies which highlight the advantages of European cooperation, so you always have to read them with a critical eye. On this occasion, however, the library has excelled itself: this is a critical study of the effects of the increases in VAT. What do you know? The member states are obliged by European agreements to set their highest rate of VAT at a minimum of 15%, with the possibility of setting no more than two lower rates for a limited number of products. In the Netherlands we have two rates, 19% for most purposes and a low rate of 6% for basic essentials. There are, however, member states where rates are as high as 25%, and only a few which impose lower rates of VAT than does the Netherlands.

The study also shows that almost every member states has increased its rate of VAT substantially over the last ten years, the only exception, where rates have actually been lowered, being the Czech Republic. The study clearly demonstrates that VAT increases hit the worst paid hardest. It is no surprise then to find that poverty in Europe is on the rise. Not only are those on the lowest incomes suffering cuts in benefits while wage rises lag behind inflation, but they are also hit by indirect taxes. It’s high time that we saw proposals brought forward by the SP adopted, for higher taxes on the highest earners and for a correction of the lag in incomes for the lowest. And as far as the EU is concerned, we could perhaps improve things by having a maximum rather than a minimum rate, which would see the EU really doing something towards the fight against poverty.