Pedro Marques is a member of the European Parliament and vice president of the group of the Progressive Alliance of Socialists and Democrats (S&D). Paul Tang is the chair of the European Parliament’s tax committee. Aurore Lalucq is the S&D’s spokesperson on taxation.
Following a global agreement on a minimum tax for multinational corporations, the deal’s European implementation was supposed to be a walk in the park. After all, the historic outcome had been supported by over 130 countries, including every European Union member.
However, as we have grown to realize, when it comes to tax policy in the EU, one must always expect the unexpected.
After being in favor of the agreement throughout the difficult negotiations, Hungary’s government decided to reverse course, oppose the deal and block it. It’s widely suspected that Hungarian Prime Minister Viktor Orbán wielded his veto power to blackmail the EU institutions and fellow member countries into relaxing conditions on the rule of law and, consequently, disburse funds currently withheld from his country. However, in doing so, he has raised a much larger issue when it comes to tax policy — unanimity.
On the one hand, by resorting to “hostage politics,” Orbán confirmed his unwillingness to comply with the fundamental principles of liberal democracy — which surprised nobody. On the other hand, the prime minister also showed his complete disregard for the European welfare state — including in his own country.
By delaying the minimum tax agreement and, likely, its implementation too, Hungary and the remaining 26 member countries will lose significant revenue — possibly more than €80 billion per year, according to the EU Tax Observatory. This is particularly irresponsible in the aftermath of the COVID-19 pandemic, with an ongoing war on the EU’s external borders and the resultant difficulties caused by soaring energy prices, all of which exert pressure on public finances.
There’s no doubt that forfeiting this additional revenue will have a detrimental impact on the quality of healthcare, education and the sustainability of pension systems all across the bloc.
Although a driver of economic growth, trade and efficiency, the internal market still lacks an effective backstop to tax competition, profit shifting and other harmful tax schemes. Major corporations and wealthy individuals are largely allowed to shop around for the best tax deal in the 27 jurisdictions, escaping social responsibility.
This is pitting our countries against each other, forcing us to engage in a race to the bottom — that is, to constantly lower taxes — in order to deter the flight of capital and protect the tax base. Currently, “tax sovereignty” is no more than catering to the needs and priorities of taxpayers with the most resources and highest mobility.
The end result of this is less total tax revenue and a shifting of the tax burden onto working people, the middle class and small businesses — essentially, those who lack a powerful legal department or have labor ties to a particular geographic area. Our tax systems become increasingly distorted in favor of the most well off, and our public services come under increasing stress.
Hungary’s veto is, therefore, a symptom of a much larger issue: how unanimity in tax policy is detrimental to the principles of equal opportunity and income redistribution, which are supposed to underpin our social model. Currently, if a reform benefits 26 out of 27 member countries, it still fails to pass through the Council due to the required unanimity.
The veto on tax policies is one of the biggest threats to social Europe. And contrary to what Orbán says, it’s also a threat to Hungarians — including pensioners — as there will always be someone, somewhere who’ll go a bit further in this race to the bottom. Without a decent backstop, Hungary’s tax revenues would then flow to yet another tax haven.
While we can eventually find some way around Orbán’s veto, and push the deal through enhanced cooperation among the remaining members, this will just be a short-term fix — not a fundamental solution.
Rethinking the voting method on tax matters doesn’t require stripping countries of their sovereignty. The qualified majority rule could be solely used to define common rules and a general framework, like establishing a consolidated tax base, minimum levels of taxation — including for capital flowing out of the EU — or tackling evasion, avoidance and fraud.
In the Conference on the Future of Europe, participants demanded much more ambition on social Europe. But pushing for more progress requires us to establish the link between social development and tax.
The tax race to the bottom simply means Europe as whole is worse off, with poorer pensioners and a gloomier future for our children.