The whole cabinet needs to stand behind Luxembourg’s veto on tax questions

Finance minister Pierre Gramegna has expressed the view that Luxembourg should not give up the principle of unanimity voting on tax issues in the European Council. This was in reaction to a suggestion by the European Commission to replace the procedure with qualified majority voting. Were this to happen, Luxembourg could see itself being outvoted on tax questions by Germany and France, with support from other member states. High-tax nations such as Belgium, Italy, Spain, Portugal, France, or Germany could set the tone on tax policies. This would seriously harm the tax competitiveness of the Grand Duchy, or even eliminate it completely. For a country with no valuable natural resources and no access to the sea, losing competitiveness on taxes could mean real economic trouble.

Despite this threat, some in the ruling coalition don’t seem quite so repulsed by the Commission proposal. Green MEP Tilly Metz supports scrapping unanimity on tax questions, as was reported by the Luxembourg Times. The newly elected social-democrat party leader Franz Fayot agrees. This left-wing argument is clear: European taxes would be “fairer”, since they would go after multinational companies even more, by rooting out competitive tax schemes. What these politicians don’t realise is that consumers ultimately pay corporation tax: higher corporate taxes (or indirect ones such as digital taxes) reduce company margins, and companies will even that out by increasing consumer prices.

Precisely how Metz and Fayot plan to fund the welfare state they propagate at the moment that foreign investors lose interest in the country, is unclear. One cannot keep raising taxes to fund free public transport, child care and school books in the expectations that investors will stick around indefinitely to fund it. That is a dangerous illusion.

France is desperately pushing for a digital tax in order to calm the political uproar of the “Gilets jaunes” at home. The only thing stopping that from happening is that reasonable countries such as Ireland are holding France back. Luxembourg needs to support Dublin in this fight, and preserve unanimity voting on tax matters in the EU.

Before the government can do so, it needs to rally the entire cabinet behind one position. Pierre Gramegna has already said what he thought, and it is a sentiment that other parties also share. Prime Minister Xavier Bettel needs to make clear to his other two coalition parties – the Greens and the Social-Democrats – that this position is not negotiable, and that he’s serious about preserving Luxembourg’s veto.

If these two partners aren’t willing to defend Luxembourg’s competitiveness on tax, perhaps the CSV will.

This article was first published by the Luxembourg Times.

Pictures are Creative Commons.

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About Bill Wirtz

My name is Bill, I'm from Luxembourg and I write about the virtues of a free society. I favour individual and economic freedom and I believe in the capabilities people can develop when they have to take their own responsibilities.

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