Taxation: The key to European integration and Spanish cohabitation

The process of European integration is clearly undergoing a difficult phase. Numerous proposals have been put forward on how to overcome this difficulty, ranging from Brexit’s renationalisation of politics and return to an intergovernmental focus in the European Union to a push for federalism that demands new treaties and profound political debate, which would most likely be difficult to manage and complicated to ratify.

From a clearly federalist position, however, in these times of political apathy and citizen alienation it is essential to seek immediate results, and quickly, whilst the launch of the endlessly long and far-off process of treaty reform is considered in the background. Europe needs to respond with clear, transparent policies and proposals that get direct results in areas our put-out citizens are sensitive to, spaces in which European action proves imperative to obtaining results.

The reality is that Europeans no longer look to the European Union for solutions to issues such as economic and social security, or even terrorism, and have forgotten the circumstances which a decade ago made Europe such a successful collaborative project. A growing percentage of Europeans have given up believing in progress, in the idea that things are bound to improve with time whether true or not, and no longer trust in the power of public policy to solve their problems and do away with, or at the very best mitigate, sources of insecurity.

The reality is that Europeans no longer look to the European Union for solutions to issues such as economic and social security, or even terrorism.

The economic and social crisis has weakened the European project because the first-hand, physical reality of its brutal consequences have not been met with any clear compensatory political action. Europe and its supranational institutions have remained indelibly linked to the origins of the crisis and the poor management of its consequences, and in no way to the search for precise solutions that prioritise the minimisation of its social impact. The narrative according to which the crisis would have been far worse without Europe lacks sufficient strength to compensate, even minimally, for the ravages that have given way to a reigning and dominant negative feeling around the European project.

It is true that not all Europeans who distrust Europe do so for the same reasons: for some, it is the refugee crisis in these times of increasing nationalism and xenophobia, for example, or indeed the consequences of the crisis for a South confronting a North which, rightly or wrongly, feels like it alone bears the financial burden of its Mediterranean neighbours. However, all share certain concerns that also happen to be the principle reclamations of populism. This is where work needs to carried out, in the common ground.

The European Union needs to find another way to advance towards greater political integration. It is possible to make progress in specific areas that would quickly create visible results for citizens, such as taxation. Without a doubt, taxation is one the areas that citizens are most greatly concerned about, in the north as in the south and across the entire social spectrum of Europe’s complex society.

The fiscal debate

Traditionally, the fiscal debate in Europe has focused on public expenditure and control of public accounts. However, there are tax-related elements of the debate that urgently demand a European focus. The harmonisation of rates and taxes is necessary to put an end to the entirely justified indignation felt at the evasive tactics of businesses and even individuals within the European Union, as within the Eurozone, in order to avoid their tax obligations. In this respect, the fight against fraud and evasion (or avoidance) is unapproachable from within the scope of the nation state.

The same can be said of the fight against tax havens, which demands coordinated measures from the standpoint of the strength and solvency granted by concerted action outside the limits of the European Union in the general context of globalisation, digitalisation and continuous financial and judicial innovation. There are no words to justify the existence of tax havens within the Union itself, comparable national practices, or indeed States or genuinely European “enclaves” within our borders or under the sovereignty of certain Member States that are.

Taxation tackled in a practical, robust way can offer quick and perhaps even spectacular results. For example, the European Commission calculates that tax fraud and evasion across the Union equates to an annual loss of one billion euros in fiscal revenue, a quantity equivalent to the GDP of Spain or the entire amount spent on healthcare between all Member States. In terms of public debt, the eradication of tax evasion in the European Union would allow for Europe’s debt to be paid off in nine years.

The public sentiment that tax fraud and evasion are going unpunished is weakening the democratic system and eating away at confidence in institutions, as they not only erode national tax bases, thus damaging public finances and suffocating fiscal consolidation efforts, but they also contribute to the unjust distribution of the fiscal burden and a reduction in the ability of public spending to invest in and provide public services and social benefits. These are precisely the consequences of the crisis that have caused the greatest political disaffection and distancing from Europe. That is something all Europeans can agree on.

The public sentiment that tax fraud and evasion are going unpunished is weakening the democratic system.

A return to the nation state is not viable, as the irreversibility of the euro has demonstrated, whilst stagnation is the ideal terrain for populism and nationalism to finish off the European project. An updated fiscal space would contribute to the completion of the euro’s governance framework that is currently centred on monetary issues (ECB), making steady if insufficient development in financial and banking aspects (European Stability Mechanism – ESM – and the Banking Union), but is still far from the ideal with regard to fiscal matters (budgets, expenditure, and above all the mutualisation of risks and debt management, solidarity). The Economic and Monetary Union needs to put a parenthesis on its economic chapter and advance towards a Fiscal Union. Another ultimate “fiscal” objective is to give the Union its own resources, including taxes or its own tax system, that can replace the current system of State contributions and allow for the creation of a budget capable of financing European policies that boost growth and strengthen social protection.

Albeit not the point this article aims to prove, Europe does need a common economic policy which compliments the euro and puts an end to the asymmetry that worsened the recession. This was brought about by the inexistence of a common budget capable of implementing concerted policies designed to boost demand and increase productivity through investment, additional and higher quality education and R+D; manage large investments in favour of growth and competitivity; and finance counter-cyclical policies. It is necessary to mutualise public debt and assume collective responsibility in guaranteeing it.

However, let us return to taxation, the central theme of this article. The strengthening of European fiscal coordination on tax issues would have positive effects on some of our current problems, such as the doubts surrounding the European south’s tax culture and awareness in the eyes of the rigorous Member States of the north of the Union. A secondary consequence of this change in attitude is that the ensuing reduction in distrust would aid in the correction of excessively restrictive fiscal policies, especially in countries such as Germany and the Netherlands with “fiscal space”, taking advantage of low interest rates to boost growth via an increase in internal demand (investment in infrastructure, increased salaries).

The strengthening of European fiscal coordination on tax issues would have positive effects on some of our current problems

Another important consequence could be a contribution to resolving Spain’s debate over its territorial model and Catalonia’s so-called constitutional “fit” with the rest of the country. Spain’s regional finance system and Catalonia’s contribution to solidarity are a fundamental part of this issue, which demands a “global redefinition of the rules of cohabitation” and the constitutionalisation of the regional finance system upon the premise of the equality of rights of all Spanish citizens irrespective of where they live.

As regards revenue, fiscal harmonisation and coordination leave increasingly less room, if any at all, for fiscal differentiation: differentiation that in the regional territories has in practice disappeared compared with the Spanish territory as a whole, under the so-called “common system”, in terms of taxes and fiscal pressure. In this respect, Europe can lead the way and propose a solution to disputes over tax ownership as, if an agreement is reached on solidarity and sufficient funding for public polices, including with premises such as the ordinality principle, the ownership of the tax collector is devoid of all relevance. The solution to the crisis with Catalonia within the framework of comprehensive European tax convergence, including revenue, would then pass for a political pact with financial content that reflects the specificities of Catalonia’s situation in the context of mutually supportive cohabitation which is federal on both a Spanish and European level. This political pact would be backed up by the reality of European tax convergence, strengthening the principle according to which it is not important who collects tax, but rather that all citizens enjoy equal rights.

To sum up, the main proposals presented to construct a comprehensive European financial system from the standpoint of revenue currently under debate are as follows:

·      Standardise national fiscal systems within the Union to combat fiscal dumping and strengthen the single market.

·      Harmonise corporate tax by establishing a rate bracket to combat unfair tax competition in the Eurozone and the European Union. Additionally, establish a common corporate tax base.

·      Ensure that businesses pay their taxes where they conduct their economic activity.

·      Eliminate banking secrecy by establishing an obligation to exchange fiscal information automatically, as well as by approving regulation that ensures transparency, discourages obscure fiscal behaviour and strengthens cross-border cooperation.

·      Create a European tax authority that centralises all information exchanges and directs the persecution of fraud, establishing a system of transparency to fight against the laundering of capital and a European public register of trusts and foundations, etc., that coordinates the activity of the competent national authorities.

·      Implement a financial transaction rate with an impact not only on collection but also on the control of speculative or fiscally elusive movements, which also ensures the fiscal contribution of the financial sector.

Ultimately, it is of the utmost importance to place taxation, including that of revenue, amongst the future pillars of the EU.

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