Monti’s mountain

Date: 20/02/1997

SISYPHUS is usually portrayed as a muscular, bearded fellow humping a giant boulder up a hill only to watch it roll back down - forever. A dapper, bespectacled Italian professor he is not.

Nevertheless, in his futile attempts to cajole European governments into coordinating a switch in their tax base away from labour and on to capital, Mario Monti could easily pass for the unlucky Greek.

It is impossible not to admire the Internal Market Commissioner's persistence and his faith that he can persuade ministers through sheer weight of argument.

There they were in Verona, preparing to sit through another of their informal discussions on what a good idea monetary union is and how important monetary stability is to Germans, when Monti had to spoil it with a long, well-argued paper on tax competition.

For a moment, they were forced to stand back and look at what tax competition is doing to European society.

These are not simply questions about withholding taxes on interest income for non-residents or whether value added tax should be levied in the country of origin. They are about real choice in the way national incomes are spent.

Monti pointed out that, over the past decade, governments have slashed taxes on capital in order to attract investment once controls on the free movement of money were abolished. Unfortunately, people want the public services that taxes pay for, so this lost income had to be supplemented from somewhere. But where?

The answer governments came up with was that easiest and least mobile of targets - labour.

As a result, over ten years, the tax base has been eroded, jobs have been lost in droves and the opportunity for electorates to choose between genuine spending alternatives has disappeared.

Thankfully, the Commissioner is not naïve. He knows that government attitudes will not change overnight and that his only hope is to make sure that his new high-level group includes people of political standing rather than just civil servants.

He does, however, underestimate the national interests involved. Ireland's recent economic miracle is built on tax breaks, and as for asking Luxembourg to give up its banking industry - which is what an end to its haven status would mean - you might as well ask Theo Waigel to introduce a new German tax on investment in heavy industry.

The Monti group will talk, but tax competition will remain a fact of Union economic life for a generation.