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Towards a more sustainable taxation policy

The EU-funded FairTax project is developing a comprehensive, sustainable tax base reform capable of addressing the economic, social, cultural and environmental dimensions of taxation.
Towards a more sustainable taxation policy
Contemporary tax systems are anything but simple. Globalisation, internationalisation, human and corporate mobility and the establishment of the European Economic and Monetary Union have all brought the features of EU Member State tax systems and the programmes they fund into the policy arena. According to FairTax (Revisioning the ‘Fiscal EU’: Fair, Sustainable, and Coordinated Tax and Social Policies) Project Coordinator and Professor at Umeå University Åsa Gunnarsson, this is partly the result of the 2007 financial crisis and ensuing recessions, but also because governance of the EU and of Member States can be enhanced by tax policies that maximise human well-being in sustainable ways.

The EU-funded FairTax project is a cross-disciplinary research project working to produce recommendations on how fair and sustainable taxation and social policy reforms can increase the economic stability of EU Member States. To learn more, we sat down with Professor Gunnarsson.

What does the FairTax project hope to accomplish?

Our team of researchers, who come from 10 partner universities located in eight countries, are conducting in-depth comparative, interdisciplinary research with the goal of reaching four core outcomes. For example, the EU currently does not harmonise national tax policies for growth or social equality. What FairTax wants to do is identify options for expanding the EU’s legislative competencies and governance mechanisms for supporting the harmonisation of Member State tax and social policies. Likewise, our researchers are also looking for ways to erase some of the inbuilt barriers to the full recognition of treaty-based obligations relating to environmental issues and harmful tax competition. Here we are developing and testing reform options for state-level coordination to create fairer and more sustainable tax and social policy regimes that are binding on both EU members and the EU itself.

Another area of focus is how many Member States place large businesses in a different tax category than other taxpayers. On this basis, FairTax has taken on the task of recommending strategies for increasing the effectiveness and harmonisation of tax administration and compliance structures within the EU and non-EU areas, including the exchange of administrative innovations across agencies. Last but not least, we also identified an opportunity to introduce EU taxes as a solution for funding the EU budget. On this point, the project aims to formulate recommendations for creating true, own-source EU revenue.

Through these four objectives we plan to clearly demonstrate how tax systems must be designed and implemented in such a way that they are perceived as being fair. Otherwise they lose democratic support and fail to be sustainable.

What has been the response of policy makers and other stakeholders?

The ongoing impact of FairTax is visible from the fact that there is significant interaction going on between the project and national and European policy makers, along with such other stakeholders as tax authorities and NGOs. Take for example the area of gender equality and taxation issues. On this topic, interaction and collaboration with Member State ministries of finance, the European Parliament and the United Nations has been extensive. In fact, when the European Parliament’s Committee on Women’s Rights and Gender Equality (FEMM) wanted an in-depth analysis of gender justice in taxation, it turned to FairTax to write a report on the topic.

Where are you at in regard to your work on a Common (Consolidated) Corporate Tax Base (CCCTB)?

We have already quantified the tax revenue effects of adopting a CCCTB in the EU, and this work has been highly visible. For instance, our simulations on different CCCTB variants are of immediate interest for the Commission’s ongoing work on introducing a common corporate tax base. Beyond the European institutions, national fiscal authorities are highly interested since the simulations give an idea of possible revenue consequences.

Our researchers are in close contact with the European Parliament rapporteur responsible for CCCTB legislation. They are also supporting the Czech government in defining its position on CCCTB. Danuše Nerudová, who is leading this line of research, has presented our work at many high-level meetings, including one arranged by the Independent Commission for the Reform of International Corporate Taxation (ICRICT), where FairTax presented CCCTB as a possible candidate for a global reform of corporate taxation.

Of the many accomplishments that the FairTax project has already seen, what are you most proud of?

The success of the project simply would not be possible if it wasn’t for our truly interdisciplinary team being able to apply different disciplinary perspectives and methods to the issues of fairness in taxation. This research infrastructure works well and serves as both a mutual inspiration between disciplines and a basis for the open access of our results. This open access approach could very well serve as a model for future academically successful research.

The project comes to a close in February 2019. What do you hope to accomplish between now and then?

Our overall goal is to contribute to a more comprehensive view on tax fairness and sustainability. When the project does end, I foresee our legacy being the connection we have made between tax sustainability and the re-emerging policy trends in tax equality and tax equity.

What do you mean by this connection?

Our research shows that sustainability and fairness are interconnected issues in designing a tax system. For example, from a welfare state perspective, tax sustainability has a strong social pretext as social welfare obligations are distributed over the public budget. This means that when social justice is excluded as a guiding principle for tax policies, the revenue side of public budgets becomes detached from the social programmes that aim to create a more equal distribution of post-tax incomes. Another aspect of the dilemma is that, from a tax base perspective, each welfare state has to identify a sustainable mix of tax bases in order to meet legitimacy demands that always, in one way or another, include the political aspects of social justice, equity or equality.

So, what’s the solution?

A policy that strives towards greater tax fairness can improve the degree of sustainability within a tax system. Remember, taxation has many sources, and the same source is often used as a tax base for several taxes – and any comprehensive tax base approach to national tax systems must consider this complexity.

With this in mind, historically, one-sided tax policies that only promote growth-oriented regulations have been argued to be the efficient way to achieve economic sustainability. However, our research is questioning this policy paradigm. After all, a one-sided tax for growth paradigm can, in the end, actually undermine economic sustainability. This is because there seems to be a correlation between taxing for growth and the economic efficiency driven reforms over recent decades and the increase in income inequalities. What the FairTax project proposes is to replace this historic system with a comprehensive, sustainable tax base reform that addresses the economic, social, cultural and environmental dimensions of taxation.

Source: Interview from research*eu results magazine n. 75

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