Open letter to call for a deep reform of the EU fiscal rules

18/10/2022

FEPS cosigned an open letter to EU leaders calling for them to address the underlying structural problems of our economic system ahead of the Commission’s publication of its orientation paper.

The open letter, initiated by the Fiscal Matters coalition, outlines a vision of a reformed EU economic governance framework that targets the roots of the social and ecological crises. It highlights a crucial time for transformative change in EU policy through adopting a Sustainability and Wellbeing Pact and a new EU fiscal framework that would enable a truly fair, sustainable, and future-fit economy.

Ahead of the European Council and the Commission’s orientation paper on economic governance and fiscal rules expected in October, the Fiscal Matters coalition, which brings together civil society organisations, academics, think tanks, and trade union leaders, published an open letter calling for deep and urgent reform to accelerate the green and just transition, restore trust in the EU and build a solid foundation for a sustainable future. With the end of the suspension of the EU fiscal rules in 2024, the letter emphasizes the necessity for the EC to present a comprehensive reform proposal of the EU’s economic governance through a democratic and transparent process, that includes a formal role for the European Parliament (ordinary legislative procedure).

EU economic policy no longer delivers for the European people and nature, with a growing green investment gap, persistent inequalities, and ongoing environmental degradation. The letter asserts the need to adopt a long-term economic mindset allowing the next generation to enjoy better public services, lower inequalities, and healthy ecosystems.

The converging crises require a complete rethink of the economy, shifting priorities from wealth to well-being, from consumption to quality of life, and from growth to equality. Rather than optimising outputs, we need a well-being economy, allowing everyone to enjoy a warm home, good health, strong relationships, and a habitable planet. 

The change from the Stability and Growth Pact to the Sustainability and Wellbeing Pact should be solidified in legislation and supported by effective mechanisms and relevant indicators. Such an economy should be based on well-paid, meaningful jobs that do not reinforce the endless treadmill. Such an economy would not only be more inclusive and equitable but also more resilient to future crises.

Closing the green funding gap could not be timelier. When European billionaires grow their wealth as citizens struggle to pay bills, something is not going right. And austerity politics, arbitrary fiscal rules and stockpiling of sustainability risks can further worsen things. We need a framework that would not entrench our problems but help solve them. 

With environmental taxes accounting for less than 6% of total taxes EU-wide, green tax reform is urgently needed. The tax burden must be shifted away from labour to pollution and resource use, in combination with a more equitable redistribution of revenues. At the same time, progressive and bold tax reforms should, as a priority, tackle the growing inequalities of wealth, including by introducing price caps and an EU-wide minimum corporate tax. We also need to rethink our approach to public debt, from limiting fiscal deficit ratios to the impact and quality of spending and its contribution to environmental and social objectives, paired with country-specific debt reduction pathways.

Reinvesting for an inclusive and flourishing society should be a central priority, facilitated through universal access to quality public services, social safety nets and a care economy so that no one falls through the cracks. Revenues generated by the well-designed fiscal system can prove crucial to accelerating the shift, including foregoing fossil fuels for accessible, affordable and nature-positive renewable energy. 

A complete rethink of our economy would enable humans and nature to thrive together in the long run. The time is ripe for an economic governance and fiscal framework that would undeniably steer us in this direction.

Fiscal Matters coalition is a group of civil society organisations, think tanks and trade union leaders, including: European Trade Union Confederation, European Environment Bureau, European Youth Forum, Climate Action Network Europe, Finance Watch, New Economics Foundation, Greentervention, Sustainable Finance Lab, Réseau Action Climate France, ZOE Institute for Future-fit Economies and Social Platform.

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