This summer, the European Commission proposed five new sources of revenue for the EU’s new long-term budget (Multiannual Financial Framework, or MFF), covering the period from 2028 to 2034. EU member states have reportedly already rejected two of the five proposals. In particular, the proposals relating to the “Corporate Resource for Europe” (CORE) and the “Tobacco Excise Duty Own Resource” (TEDOR) are meeting with strong resistance.
CORE, which would generate around €6.8 billion per year by taxing companies with an annual turnover of more than €50 million and a permanent establishment in the EU, was heavily criticized by the German government at an EU Council meeting last month, as it was said to jeopardize the international competitiveness of EU companies and its legality was even questioned. Euractiv quotes an EU diplomat who points out that no one was in favor of or even positive about this particular proposal. It is significant how far removed from reality the European Commission’s bureaucracy has become.
The Commission’s proposal for a TEDOR tobacco tax also met with strong resistance, with 14 EU member states, including Italy, Greece, Austria, Sweden, Portugal, and Romania, opposing it. They also argued that any new revenue at EU level—EU taxes—should relieve national governments of their contributions to the EU budget, rather than transferring funds from national budgets.
In this regard, it is worrying that the tax increases proposed by the Commission would also cover “tobacco-related products”, even if they do not contain tobacco, such as vaping products. The head of the European Commission, Dutchman Wopke Hoekstra, continues to equate traditional tobacco products, such as cigarettes, with new alternatives. On LinkedIn, he describes these alternative products as “also extremely harmful.” However, the UK government’s Department of Health has pointed out that “the most reliable estimates indicate that e-cigarettes are 95% less harmful to health than regular cigarettes.”
There are always unknowns in science, and no one can say that regulators should not be cautious, especially when it comes to children, but should we find it normal for a European Commissioner to ignore the current scientific consensus in this way?
Alternative approaches
Even more regrettable is the fact that the commissioner never seems to consider what has worked to drastically reduce smoking rates. Snus is an older alternative to cigarettes. It has been banned throughout the EU, with the exception of Sweden, which enjoyed an exemption from the EU ban in the 1990s when it joined the European Union. In this way, Sweden serves as a control group. After thirty years, the results are clear and deeply embarrassing for EU health policy. Currently, Sweden has one of the lowest smoking rates in Europe and also has a much lower incidence of smoking-related diseases. In the 1960s, almost half of Swedish men smoked. Today, only about 5% of Swedish adults smoke, while the European average is 24%. Compared to other EU countries, Sweden has 44% fewer tobacco-related deaths, 41% fewer cases of lung cancer, and 38% fewer cancer deaths.
Although snus was originally a tobacco product, there are now tobacco-free varieties on the market that contain only nicotine. However, several EU member states have banned them. Surely, banning products that are harmful to health may work for a small part of the population, but providing nicotine addicts with an alternative that avoids exposure to the combustion process has clearly worked in Sweden’s case. Nevertheless, people like Hoekstra seem blissfully unaware of this alternative policy approach.
Hoekstra’s colleague, European Health Commissioner Olivér Várhelyi, has gone even further. He recently told members of the European Parliament that “new tobacco and nicotine products pose health risks comparable to traditional ones.” This is enough to suggest that the EU should have no say in health policy, except to prevent it from acquiring greater fiscal powers.
EU finance ministers are scheduled to discuss CORE, TEDOR, and other proposed sources of revenue on October 10. Opposition is likely to remain strong, but this should not obscure the fact that the European Union has gained considerable influence over tax matters over the years.
Review of EU tax policy
Earlier this year, EU member states called for “a thorough analysis of the EU legislative framework” on taxation, thus calling for “a comprehensive review of EU tax legislation.” The initiative aims to help improve the competitiveness of European countries, which has been severely hampered by high energy prices, but also by costly regulation and a high tax burden. For a long time, taxation was primarily the responsibility of EU member states, but the situation has changed significantly. The EU has considerable control over this important policy lever.
EU member states have therefore stated that they want the European Commission to “introduce an operational, pragmatic, and ambitious action plan” to implement a “tax simplification and streamlining program” aimed at “reducing reporting, administrative, and compliance burdens for member state administrations and taxpayers.”
As is often the case, one arm of the bureaucracy is not always aware of what the other is doing, because in April, EU governments approved the implementation of a global minimum rate of 15% for corporate tax in the EU. This is a remarkable achievement, as it reduces tax competition within the bloc, resulting in less pressure on governments for fiscal discipline, as they no longer have to fear losing tax revenue to companies opting for Member States with a more attractive corporate tax rate. In June, US President Trump announced the withdrawal of the United States from this global tax agreement that had been agreed at the level of the Organization for Economic Cooperation and Development (OECD). One can only wonder why European governments should continue with this agreement now.
Trump’s pressure has already forced the European Commission to abandon plans to introduce a digital services tax, which the EU had hoped to push through to boost its long-term budget revenues. However, the plan dates back more than a decade, and as is often the case with these European Commission proposals, one can be fairly certain that it will be reintroduced in one form or another. Fundamentally, the Commission simply ignores the evidence that such digital services taxes tend to be passed on to small sellers, who then raise prices for local consumers.
At present, a particular EU tax arrangement is really hurting the competitiveness of European industry. The current cost of the EU Emissions Trading System (ETS), a de facto EU climate tax, to the price of natural gas in the EU is about double the total price of natural gas in the US, which is only about 1/5 of the price of natural gas in the EU. In other words, while the EU and its member states could embrace nuclear energy, gas exploration in the Netherlands and Italy, and shale gas in Poland and Germany, these are long-term measures. Simply abolishing the EU’s climate tax regime would already greatly help the EU industry. However, no serious European politician is even considering this possibility. Even those who care about CO2 emissions should realize that in the US, where there is no such climate tax, CO2 emissions have fallen more dramatically in percentage terms since 2005, when the EU ETS was launched.
Ineos, one of Europe’s largest chemical groups, warned this year that “the European chemical industry is on the brink of extinction,” but few seem to care.
Instead of focusing on profound distortions such as ETS climate taxation, the European Commission is focusing on acquiring ever greater fiscal powers. Once again, European Health Commissioner Olivér Várhelyi has made it clear that his institution will continue to push hard for greater fiscal powers in other areas. Last month, during a meeting with the European Parliament’s Health Committee, he expressed his openness to a system of taxation on products high in sugar, fat, and salt to help fund public health. He even suggested that his institution’s “EU4Health” spending program be the recipient of the funds.
Is the European Commission a hopeless case?
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