2011 Report 'Tax reforms in EU Member States': EU Member States face challenges in tax policies

11 Oct 2011 12:35 PM

The consequences of the financial and economic crisis are deeply reflected in Member States' government revenues. Having implemented a wide range of tax stimulus measures from 2008 to 2010, the focus of tax policy has now clearly shifted towards a much needed consolidation of public finances in Member States. This is even more necessary in light of the difficulties currently faced by some Member States in refinancing their sovereign debt.

The 2011 report 'Tax reforms in EU Member States: Tax policy challenges for economic growth and fiscal sustainability' takes a look at recent trends in tax revenues and tax reforms implemented in Member States. In view of future tax reforms Member States may implement the report analyses the issue of quality of taxation and identifies challenges for tax policy in euro-area Member States.

"Member States with an unsustainable budgetary situation and clear room for tax revenue increases might have to consider using taxation to contribute to the consolidation of public finances, in addition to the necessary expenditure control. At the current conjuncture it is particularly important to make tax structures more growth-friendly and to enhance the design of individual types of tax. Taxation is an important element in the integrated economic policy coordination within the EU," said Economic and Monetary Affairs Commissioner, Olli Rehn.

Algirdas Šemeta, Commissioner for Taxation and Customs Union, emphasised: “Paying attention to the quality of taxation will help addressing current policy challenges and meeting the objectives of our growth strategy. Well-designed tax reforms promoting employment and growth can go hand in hand with social equity. Finally, effective tax policy coordination in the EU would deliver better outcomes, at lower economic costs. This report will help Member States facing their tax policy challenges."

The report points to three types of potential challenges in the area of taxation and tax policy faced by EU Member States:

  • the potential need to address severe fiscal consolidation challenges also by measures on the revenue side;

  • the potential to make the tax structure more growth friendly;

  • ways to improve the design of the tax system for individual types of taxes.


The report shows that, while tax revenues had dropped markedly in 2008 and 2009, they are on the rise again, for cyclical reasons and due to tax increase measures. Overall tax policy in the EU thus had a slightly contractionary effect on GDP already in 2010. Tax measures adopted in the first half of 2011 focused in almost all Member States on raising tax revenues. In some Member States measures have been taken to amend the tax structure with a view to supporting growth.

The report furthermore analyses the tax structure as one important aspect of the quality of taxation. The report focuses on the effect of taxation on economic growth and presents a ranking of taxes. A "good" tax system should design taxes so as to reduce distortions to the minimum possible and, where appropriate, correct market failures. Adverse interaction between cross-country tax systems in the EU resulting in double taxation or non taxation should be avoided.

Applying an indicator-based approach, the report identifies in which euro-area Member States higher tax revenues could potentially contribute to consolidation and which countries could benefit from a shift from labour taxes, in particular those falling on vulnerable groups, to consumption and real estate taxes. Analysing more specific horizontal challenges related to the design of individual taxes, the report concludes that almost all euro-area Member States face at least one challenge. Among these challenges, the report looks in particular at the potential need to decrease tax expenditure in direct taxation, the debt bias in direct taxation, VAT efficiency, possible options to "green" tax systems, the efficiency of tax collection and issues of tax evasion. These identified tax challenges may deserve further investigation in the framework of the integrated economic policy coordination with the EU, i.e. the "European Semester".

The Report is available on:

Link to ECFIN homepage

Link to DG Taxation and Customs Union

Contacts :

Amadeu Altafaj Tardio (+32 2 295 26 58)

Catherine Bunyan (+32 2 299 65 12)

David Boublil (+32 2 296 55 73)

Natasja Bohez Rubiano (+32 2 296 64 70)