Sarkozy proposes stopping EU funds for low tax Member States

French Finance Minister Nicolas Sarkozy said
he plans to propose to his EU colleagues that the new members with
lower than average tax rates be barred from receiving structural
aid funds.

French Finance Minister Nicolas Sarkozy is set to propose to his
counterparts on 10-11 September that new Member States with tax
rates inferior to the European average do not receive structural
funds. “One can’t allow in Europe that some countries say ‘we’re
sufficiently rich to lower our taxes’ – to as low as zero in some
cases – but at the same time ask the countries of old Europe to pay
structural funds that we could use for our regions,” Sarkozy said
in France’s TF1 television. 

The low corporate tax rates in several of the ten new Member
States has been a hot issue, with German Chancellor Gerhard
Schröder and French President Jacques Chirac vowing to work
together to harmonise tax rates in order to prevent what they see
as fiscal dumping rates. But tax harmonisation is opposed by some
other old EU members, especially Britain which has made alignment
of tax rates a “red-line” issue during the discussion on the EU
constitution (see  EURACTIV, 10 May 2004). 

The move can be seen as part of efforts to stave off
delocalisation. It will be on the agenda of the EU finance
ministers during their informal meeting in the Hague on 10
September alongside the new Commission’s proposal for a revised
Stability and Growth Pact (see  EURACTIV, 4 september 2004). Defenders of tight budgetary
discipline, such as the Netherlands, fear that any sign of
flexibility will undermine the credibility of the eurozone. A final
decision on whether or not to adopt the new rules is not expected
until early next year.