Euro business buoyed by surprise demand surge

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This article is part of our special report European Business Summit.

A 22% boost in new industrial orders has provided a much-needed fillip for business leaders gathering in Brussels for this week's European Business Summit.

A surge of demand in March and April of 7.1% and 0.9% respectively saw the annual rate of new industrial orders jump by 22.1% in the euro area and by 21.8% in the EU 27 in the 12-month period beginning April 2009. The biggest increases were seen in Hungary, Portugal and Lithuania.

This comes off the back of a deep decline in 2008 and early 2009.

Industry chiefs, who descend on the Belgian capital for the annual think-in tomorrow and Thursday (30 June and 1 July), can also take some solace from the 12% increase in investment in EU economies revealed in new figures from Eurostat, the EU's data collection arm.

The summit, billed as a high-level debate on "putting Europe back on track," will look at ways to sustain the economic recovery illustrated by the new data.

However, the figures published yesterday (28 June) also highlight the lack of investment by European countries in the rest of the world. Foreign direct investment (FDI) by EU member states fell by 24% last year as the impact of the financial crisis rippled through the economy.

The rebounding investment into Europe is particularly good news for Luxembourg, which was the recipient of 40% of the EU total – attracting €88 billion last year. The UK and France received 15% (€34 billion) and 5% (€10 billion) respectively.

Luxembourg's disproportionately high share reflects the tendency for companies to have their seat in Luxembourg's pro-business environment while carrying out the bulk of their activities elsewhere.

Corporate tax burden eases

Eurostat has also published fresh data mapping taxation trends in Europe since the year 2000. Overall the picture is encouraging for industry given the slow but steady decline in corporate tax rates and the falling tax burden on capital.

However, taxes on labour and consumption continue to make up the bulk of Europe's tax take.

Despite the perception of Europe as a high-tax market compared to competitors such as the US, Japan and emerging economies in Asia and South America, EU member states have been reducing business taxes over the past decade.

Marco Fantini of the European Commission's taxation wing told journalists that tax in Europe is, on average, 40% when social security contributions are included. There is wide variation across the EU but the gaps have been narrowing over the past decade as low-tax economies push up taxes and high-tax countries ease the taxation burden.

Fantini said the crisis had seen a range of taxation measures introduced to help make life easier for companies but could also see an increased burden as tax loopholes are closed and VAT is increased in several member states.

Some countries have given firms the opportunity to defer tax payments in order to help them cope with liquidity problems. He also noted that while consumers can expect to pay higher duties in several member states, corporations have enjoyed an increasingly pro-enterprise environment.

"Corporate tax rates have been going down for years – since the mid-1990s – and the crisis hasn't affected this," Fantini said. He added that the top personal income tax rate has also fallen over the past decade but some governments have decided to reverse this trend as part of fiscal consolidation measures.

Commissioner wants tax harmonisation

Meanwhile, the Commission is currently working on an analysis of national tax schemes with a view to ironing out inconsistencies between member states.

Algirdas Šemeta, EU commissioner for taxation and customs union, told the European Parliament yesterday that he wants to harmonise the corporate tax base.

"By creating common EU rules, we could eliminate costly mismatches between national systems and significantly reduce compliance costs for enterprises operating in more than one member state," he said.

Šemeta also promised a new green paper on Europe's VAT systems, which will try to create a simpler and more pro-business environment.

Since the beginning of the economic crisis, EU leaders have stressed the need to return Europe to growth, culminating in the publication of the Europe 2020 strategy (EURACTIV 01/02/10).

Business leaders have set out a series of targets to measure whether politicians are embracing reforms (EURACTIV 03/02/10). A wish-list of pro-growth policies designed to make Europe more competitive was published earlier this year and is being monitored as part of the 'Europe on Track' project run by the European Roundtable of Industrialists.

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