Sat. Oct 12th, 2024

Prague, 10 September 2022

On the second day of the informal ECOFIN Council meeting in Prague, EU Finance Ministers discussed the sustainability of public finances in European countries. Further development of the European framework for direct taxation to promote economic growth and remove obstacles to cross-border investment was also discussed.

A return to fiscal discipline and a call for the consolidation of public finances in EU countries on a sustainable track are among the main priorities of the Czech Presidency. Currently, the so-called escape clause from the rules of the Stability and Growth Pact is extended to 2023. This means that the European Commission will not fully apply the procedures in case of a breach of the fiscal rules for the maximum debt (60% of GDP) and deficit (3% of GDP).

“Although we have moved smoothly from the covid crisis to the energy crisis, we should not postpone the debate on the return of European countries to fiscal discipline. Today, European governments naturally need to increase public spending to help households and businesses facing high energy prices. However, we must not completely ignore the significant deepening of public debts in the EU over the last 20 years,” says Finance Minister Zbyněk Stanjura.

The debate also covered the current fiscal rules, which are becoming rather cosmetic with rising public debts and are not effectively enforced.

“The Czech Republic, as a possible future member of the eurozone, will have to meet the debt criterion of up to 60% of GDP before joining. Even though we are currently complying with this rule with a debt ratio of 43% of GDP, it is very difficult to explain to the Czech general public the need for budgetary responsibility and compliance with EU fiscal rules when the current average debt ratio in the euro area is around 95% of GDP,” Minister Stanjura added.

In the first part of the meeting, Mojmír Hampl, Chairman of the National Budget Council, also spoke on the topic of sustainability of public finances in EU countries:

“It is undoubtedly gratifying that a fundamental discussion on the reform of budgetary rules among EU Ministers of Finance is taking place in Prague at the time of the Czech Presidency. It can influence the shape of fiscal policy in the EU for many years to come. This debate is all the more urgent because it is taking place at a time of extreme fiscal risks in the Union, arising from the energy and security crises, and at a time of unprecedentedly high inflation and rising interest rates and hence debt servicing costs. The problems of EU countries are similar in all these respects.”

The issue of harmonisation of direct taxes was the second item on the agenda for Saturday’s meeting.”As the presiding country, we opened a debate on whether, for some of the EU-wide measures taken in the field of direct taxation, a more effective way would be, for example, to recommend or share best practice instead of introducing blanket directives. They are generally able to be less responsive to the specificities of individual Member States. In such situations, there is a risk that the directive will only bring small benefits, which will be outweighed by administrative costs for entrepreneurs and the state,” concludes Zbyněk Stanjura.

Source: Czech EU Presidency

 


 

Statement by EU Commission Executive Vice-President Dombrovskis at the ECOFIN Press conference

Thank you minister, good afternoon everyone.

Today we had a rich discussion on the future of fiscal rules.

All EU economies are going through an intensely demanding period. As we know, pressures are coming from many sides: record-high inflation and energy supply issues, just to start with.

They are holding back growth and restricting room for policy manoeuvre. So it is important that we steer through the difficult period with the right policies and in a coordinated way.

Next year, fiscal policy needs to be prudent. It needs to prioritise fiscal sustainability and be consistent with the task of the ECB to reduce inflation.

At the same time, we need to help the people and companies that suffer most. So the support measures need to be well targeted and temporary.

This is important to contain budgetary impacts, considering the large scale of the shock and limited available means.

But we also need to make progress on reviewing the EU’s future economic governance framework.

Since we relaunched the discussions almost a year ago, we have identified some fundamental issues:

  • making sure public debt is effectively declining, especially where it is high and also during good economic times.
  • paying due attention to the composition and quality of public finances, given the current high investment needs for the twin green and digital transitions and our collective security.
  • reducing complexity and improving compliance.

There seems to be broad convergence on these priorities.

So we are confident that we will be able to move forward on the basis of the orientations that the Commission will publish later in autumn.

Let me highlight a few elements.

Our first goal remains ensuring public debt sustainability. This will require fiscal adjustment, reforms as well as investments.

Those three elements should all be combined so as to achieve a realistic, gradual and sustained reduction in public debt ratios.

Second, given divergent debt levels across Member States, there cannot be a one-size-fits-all approach.

As we have outlined, there can be more leeway for Member States, but within a common set of rules.

Third, this leeway needs to be accompanied with stronger enforcement in case of non-compliance.

Finally, in terms of simplification, our surveillance should focus on a single observable indicator, like an expenditure benchmark.

We will discuss those elements in more detail once we put our orientations forward.

As I said, we are going through a demanding and difficult period. People and businesses need confidence in Europe’s economic stability.

This brings me back to taxation. We should focus on ensuring secure revenues for Member States, as we seek to protect the most vulnerable from the impact of the crisis.

At the same time, we need clear common rules to give EU businesses the legal certainty they need to prosper, invest and make the right strategic decisions in a stable environment.

In short: business-friendly taxation conditions that will help our businesses to grow.

For example, the EU has collectively agreed to implement the global minimum taxation agreement.

In business taxation, it should now be our top priority to make good on this commitment.

The Commission is committed to moving forward with implementing the agreement, and to work to find ways to do so.

This is important not only to maintain the EU’s credibility on its international agreements, but it is also a matter of fairness in these difficult times. Thank you.

Source – EU Commission

 

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