European Social Conference
Balancing Social and Economic Policy in
Europe during the First European
Semester
Brussels, 19-20 September 2011
Taxation, Poverty and Welfare: What Kind of
Fiscal Europe
Dr Jeremy Leaman
Loughborough University & EuroMemo Group
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Structural crisis of advanced capitalism
Socio-economic crisis of structural
dependence on monetary accumulation
Cyclical crisis of trade and production
Structural crisis of over-consumption
Ecological crisis of resource depletion and
habitat destruction
Demographic crisis
Social Crisis of Deprivation & Exclusion
Crisis of economic governance
Crises and Interdependence as
Context
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Loss of momentum points to more than
just a cyclical crisis: Industrial Production
Halting recovery from major Shock
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Irretrievable Loss of Welfare-Enhancing
Economic Activity? A lost decade?
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World output loss in 2009: $4 Trillion (€2.8 Trillion)
[Haldane]
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European bank bailouts 2008-2009: €2.99 Trillion [Trichet]
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Cumulative permanent loss to world output (assuming 3%
real growth): $60-$200 Trillion [Haldane]; this looks very
optimistic!
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Unemployment 2007-09: +19% from 178 to 212 million
[ILO]
Youth unemployment 2007-09: +10.7% to 81 million [ILO]
European youth unemployment 2011: 20.7% [Eurostat]
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(Sp: 46.2%; Latvia: 29.7%; Lithuania: 33.1%; Greece: 38.5%;
Italy: 27.6%; Ireland: 28.3%)
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>> Demonstrable ‘Wage scar’ for young unemployed
[Gregg & Tominey 2004]
Long-term costs
Rising Unemployment
The neo-liberal expectation of a virtuous
circle involving higher profits, higher
investment, increased employment,
increased production and higher profits
has NOT materialised >>
 Say’s Law disproven early in 1980s
 Higher profits channeled into financial
investments, not real investment
 Profits Ratio up, Investment ratio down !!
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A predictable failure
Tax Policies in Advanced States after WW2
were informed by:
 A) increased need to provide public goods
(physical and social infrastructure)
 B) increased need/ desire to boost the
welfare of all citizens.
 Therefore:
1. Progressive income tax systems
2. Increased expenditure on welfare and
public goods (redistribution)
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Interdependence of Fiscal Policy
and Income Distribution
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Neo-liberal paradigm reduced ambition of
the state and tolerated greater disparity
of market incomes
European Redistribution Worse
than average 1980-2005
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Wage ratio fall = Rise in Gini Coefficient
Inevitable increase in inequality,
measured by Gini Coefficient
Anglo-Saxon states: rise in share
of top 1 percent in to between 9%
and15% of Nat Inc
Less marked rise in Continental
Europe
Still evidence of shift towards top
percentiles
The state adjusts the disparities of
‘market incomes’ through targeted
transfers.
 If market inequalities increase, the cost of
compensatory welfare rises.
 If the progressivity of direct taxation is
reduced, the scope for redistribution
becomes narrower, the cost higher.
 If market inequalities are less, the need
for compensatory state transfers is less!
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Interdependence of Fiscal Policy
and Income Distribution 2
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The neo-liberal ‘roll-back’ of the state
involved ‘roll-back’ of the ‘social state’
Market incomes disparities have widened
markedly in most EU economies
Social expenditure has remained
comparatively high because of:
Structural unemployment
Increasing dependency ratio (declining
birth and death rates)
Fiscal and Social History of Europe
since 1980
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Failure to harmonise Income and
Corporation Tax in EU
Loss of progressivity in direct taxation,
firstly in EU15 then
During transition process off CEECs:
FLAT TAX regimes in Estonia, Lithuania,
Latvia, Slovakia, Bulgaria, Romania,
Czech Republic
Accelerated tax competition 2000-2008
Fiscal and Social History of Europe
since 1980 2
Erosion of Progressivity in Income
Taxation
Top Rates of Personal Income Tax in the EU27 in percent 1995, 2000, 2010
70
60
2010
30
23.56
20
10
1995
39.8
37.5 37.2
40
EU10 Average
EU27 Average
United Kingdom
Swed en
Spain
Slove nia
Slova kia
Romania
Portugal
Poland
Neth erlands
Malta
Luxembo urg
Lithuania
Latvia
Hungary
Italy
Irelan d
Greece
Germany
France
Finland
Estonia
Denmark
Czec h Repu blic
Cyprus
Bulgaria
Belgium
Aust ria
0
44.7
50
47.3
2000
40.3
EU10 (CEECs) Average
37.7
EU27 Average
34.8
EU15
32
34
36
38
Higher reliance of EU10 on
Indirect Taxes (as % of total revenue)
40
42
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Gradual General Shift of Tax Burden to Indirect Taxation
and reduction in CT and PIT rates: Regressive effect,
affecting poorer households disproportionately
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Downward pressure on Social Transfers before 2008
despite increased risk of poverty (Social Exp Ratio EU:
1996: 27.8; 2006: 26.9)
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Strong accompanying argument in favour of greater
inequality:
‘welfare fosters a slovenly and improvident way of life ...
the poor need most of all the spur of their poverty’ (George
Gilder 1982)
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Tax Relief Measures in 1980s and 1990s favouring capital
increased general disparities of income distribution
Consequences of Fiscal Policy for
Social Policy
PARADOX: High quality of internal and commissioned
research on social policy, exclusion and poverty BUT
weak translation of perceptions of best practice into
policy reality in individual MS
 Reflected in 2010 Joint Report on Social
Protection and Social Inclusion
 Rhetoric of Multi-Dimensional Approach to SP:
‘Balanced active inclusion strategies, combining
adequate income support, access to the labour
market and to social services, can reconcile the goals
of fighting poverty, increasing labour market
participation, and enhancing efficiency of social
spending’
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EU Social Policy
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JRSPSI acknowledges existing problems:
Diversity of social protection systems
 Divergence of social welfare cultures
 Disparity in state capacities:
 ‘Not all MS have the financial means to
meet rising demand and some have large
gaps in their safety nets. Narrowing these
gaps is now a priority’ (p.2)
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EU Joint Reports
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Subordination of Social Policy to dominant macroeconomic/ macro-political preferences:
deflationary imperative, debt-reduction, debtmanagement, attracting/ maintaining loyalty of
capital
dominance of ‘efficiency’ and ‘affordability’ in
objectives
Joint Report should be read in conjunction with ‘The
Road Map for a Stronger European Economy’ from 13
April 2011
Business as usual, supply-sidism – no social
dimension
http://ec.europa.eu/news/economy/110413_en.htm
Extensive abuse of tax avoidance and low-tax
jurisdictions by corporations and ‘high-net-worth’
individuals
Obstacles to EU Social Policy
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Market distribution has frequently neutralised
state redistribution in recent years.
Example New Labour administration in UK 19972010
Blairite supply-sidism tolerated the emergence of
inflated top salaries and City bonus culture
‘We are intensely relaxed about people getting
filthy rich’ (Peter Mandelson)
The results were predictable >>
Despite marked increases in spending on public
services, including ‘tax credits’ for poorer
households >>
Neglect of Market Distribution
Strong growth in UK Public
Spending, but ……..
It has only slowed growth in
inequality
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Consensus view of Commission and major
MS:
The sovereign debt crisis is worse than the
other crises
‘We only need to lead the markets back to
normality’ (Trichet)
We can ‘crowd in’ private investment and
growth (by reducing state demand for credit)
We can pacify financial markets with
austerity
We can export our way out of recession
Official Conclusions
Pro-cyclical austerity will empoverish
millions of poorer citizens (particularly in
the EU-peripheries) and stunt growth
 We need the former ‘market normality’
like a bullet in the head
 Germany’s ‘deflate and export model’ is a
negative sum game & seriously naive
 Market distribution of income will become
more disparate, unless we make radical
changes to policy architecture and policy
preferences
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Alternative Conclusions
EU Policy is characterised by an asymmetrical
policy architecture and contradictory preferences
1. Subordination of fiscal policy to monetary
policy
2. Subordination of social policy to macroeconomic priorities
3. Wide disparities in state capacities
4. Weak coordination and harmonisation
5. Self-defeating fixation on austerity
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Therefore:
Poverty cannot be combated in isolation from
macro-policy framework
Address European Disparities
New Policy Architecture based on
institutional coordination and
international cooperation
2. Location of Social Justice and Poverty
Reduction at the Core of Macro-Policy
Objectives: ‘More equal societies almost
always do better’ (Wilkinson & Pickett)
3. Stabilisation of European state finances
with a new Code of Solidarity:
Commitment to Progressive Taxation,
Elimination of Tax Competition,
Stabilisation Facility based on common
Eurobonds
1.
Policy Recommendations 1
Weaker peripheral states must be
conceded longer periods of recovery and
modernisation, conditional on the
abandonment of ‘free rider’ tax
behaviour and the achievement of
sustainable fiscal regimes (i.e. minimum
tax ratios)
2. Rectification of chronic external balances
within EU27 by refocussing on
convergence (common deficit and
surplus reduction) >>
3. European Clearing Union
1.
Policy Recommendations 2
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Eliminate the programmatic tax and regulatory
arbitrage of TNCs
Close down European and offshore ‘tax havens’
through Global Tax Accord
Reduce the extent of ‘social dumping’ in Europe
and worldwide
Develop strong cultural commitment to
intergenerational ecological justice; reconsider
‘growth’ and ‘welfare’
Strengthen the solidaristic features of civil
societies and the insight into the
interdependence of human existence
Crisis as opportunity: Approach Poverty (and its
exploitation) as something that is as
unacceptable but as curable as Smallpox
Recommendations 2
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We need fiscal arrangements in Europe
that are rooted in solidarity and decency
A managed market system which
precludes wide disparities of incomes and
thus reduces the need for state transfers
Harmonised system of Progressive
taxation
Well resourced public budgets at central,
regional and local level
Well resourced EU-level with refined
system of fiscal equalisation
What kind of Fiscal Europe do we
need?
Above all, we need an active, reflective
and well informed civil society with the
ability to influence and to act both
nationally and internationally:
 Days of Action across Europe?
 Maintaining the Audibility and the Visibility
of Unjust Distribution & Social Exclusion
 Make Poverty as unacceptable and
treatable as Smallpox
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Strong European Civil Society
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Declining Share of Wages and Salaries in
National Income of Advanced Economies