What´s with this new craze in Europe to cut corporate taxes?
The British finance minister George Osborne unveiled a fourth cut of corporate taxes since 2010. He rate will have gone from 28% to 20% since 2010.
To what good? It hasn´t helped growth so far, no new jobs are in sight.
Is it because Cyprus is a shining example of what really low corporate taxes can do for a country?
A tax rate of 10% has given 40 000 letterbox-companies that offers not one single job on the island and not one of them around to help out when trouble hits.
Ah, and there´s Bulgaria. Offering a 10% tax rate for businesses and the economy in such a state that it “may become Greece” according to some analysts.
Still, the tax race goes on.
Sweden cut corporate taxes to 22% this year which meant a loss of 1.6 bn EUR to the state coffers. No stampede of foreign companies so far, wanting to relocate to Sweden.
(Sweden, really?, you say, well known for its high taxation. You´re not wrong, the Swedish citizen pay a top marginal personal income-tax rate of 57%.)
Now, the Swedish state can afford to give money away, the state made a surplus of 0.3 bn EUR last year.
Denmark, on the other hand, has a budget deficit that won´t go away, no matter how much the government tries. Denmark recently announced a lowering of its corporate taxes from 25 to 22% amid an ongoing recession and its hard work to right the persistent budget deficits.
Having deficits doesn´t seem to scare any government from giving up tax revenues from the corporate world. Debt-laden Portugal has floated the idea of lowering corporate taxes to 10% – as low as Cyprus – for some months now.
The Spanish government has also had the clever idea to give up tax revenues in this way. (Both countries has to ask permission from their lenders though, so we´ll see about that.)
Meanwhile, most European governments are shifting the tax burden to their citizens. Someone has to pay, after all.
This is a race to the bottom. We will no doubt have to hit rock bottom before European governments can agree to give up their national prerogative to decide on taxes and harmonize at European level of corporate taxation.
Just the “level playing field” on the single market that the governments of UK, Sweden and Denmark keep banging on about.
The day couldn´t come too soon.