Monti conversion boosts plans for VAT cuts

Date: 09/10/1997

By Chris Johnstone

TAXATION Commissioner Mario Monti is likely to seek the support of EU leaders for his 'personal' proposal to allow cuts in value added tax at the Luxembourg jobs summit next month.

Most governments are still assessing the proposal to allow VAT-cutting pilot projects in specific labour-intensive sectors following the Commissioner's surprise conversion to the idea.

The Dutch government has been lobbying for more than five years to be given the go-ahead for pilot projects and had signalled that it would take steps to resurrect the issue at the Luxembourg summit if no one else did.

However, its past attempts faced sceptical opposition from the Commission's Directorate-General for taxation (DGXXI) and won only lukewarm support from other governments.

Monti's conversion to the idea, which caught most governments and some of his own officials unawares, and the need for the Union to agree some concrete job-creation measures, give the project a real chance of making progress.

Finland, Portugal, Belgium, Ireland and Luxembourg are lined up alongside the Dutch as supporters of the experimental cuts, according to sources both within and outside the Commission. “France used to be opposed to the idea but [Premier] Lionel Jospin has said he is prepared to use VAT to create jobs,” said Jan te Bos, secretary of international affairs at the Dutch federation of small and medium-sized businesses, the MKB.

Germany, which is trying to pilot its own fiscal reform through parliament; Denmark, which has no lower rate of VAT; and the UK, which already has high thresholds before tax is paid by small businesses, are all seen as less enthusiastic about the scheme but not necessarily opposed to it.

The original Dutch proposal was for the government to obtain approval to drop its standard rate of VAT from 17.5&percent; to 6&percent; for labour-intensive sectors such as cobblers, cleaners, hairdressers, painters and repairers. According to some Dutch studies, this would result in a 10&percent; cut in the costs of these services and a 0.9&percent; increase in employment in the relevant sectors.