Institute for Research in Economic and Fiscal issues

IREF Europe - Institute for Research in Economic and Fiscal issues

Fiscal competition
and economic freedom


February’15 Assessment of Commision’s Legal Action

We are continuing our assessments of monthly packages of legal actions initiated by the European Commission against member states. Unfortunately, no information was made available by the EC since our November assessment until the current February package. At the beginning of December, the next had been scheduled for December 16th, but there is no trace of either the December ’14 or the January ’15 packages.

EU Commission publishes a monthly list of legal actions it is taking against Member States for allegedly not complying with EU law. There are three stages: 1) “Letter of Formal Notice” is sent. If not complied with, 2) “Reasoned Opinion” is sent. If again not complied with, 3) member state is referred to the European Court of Justice (ECJ) which eventually makes a ruling (after which one further warning may be issued and then penalties follow).

We evaluate these legal actions with the following criterion: Does the Commision’s legal action mean reinforcement of, or an impediment to, an EU citizen’s interest in efficient and transparent government?.
We do not condone states failing their legal duty to fulfil EU regulations; we chastise bad regulations themselves.

Italy

is being referred to the ECJ for failing to collect levies from its milk-producers for over-production and paying them (to the EU) on the producers’ behalf, out of general taxation. Back in 1995-2009.

Our verdict: Milk quotas are a dinosaur of the Common Agricultural Policy’s “ancien régime” which introduced quotas in the 1980s to prevent CAP subsidies producing infamous butter mountains and milk lakes of the 1970s. Government charging producers for breaking the quota is effectively punishing them for a problem created by governments in the first place. It is the subsidies that need to be scrapped. Failing that, however, levies are a necessary component of a bad policy which prevents it from becoming even worse. The subsidy-and-quota system is terrible, but companies need to be incentivized. Instead, the Italian government effectively even increases the subsidy (and the problem) by paying the levy on behalf of milk producers.
At the same time, however, although rules must be complied with, perhaps ignoring bad rules is a good way of weakening them. And indeed, perhaps the long Italian obstinacy did contribute towards abolishing the programme: The milk quota system will be scrapped in a few weeks on March 31st. Officially, the EU now believes that through “decoupling”, agricultural subsidies no longer encourage over-production.

Austria and Luxembourg

are being referred to the ECJ for failing to set up a penalty system to sanction bus operators breaching the EU Regulation on the rights of passengers travelling on a bus. Additionally, Austria is receiving a “reasoned opinion” for not setting up a new institution to handle complaints of boat passengers, thus breaching the EU Regulation on the rights of passengers travelling on a boat. (Which is a separate piece of legislation from that on buses.)

Our verdict: We are not judging here the merits of the passenger rights regulations themselves. We merely note that the bus and boat passenger rights have actually become part of both national legislations. Therefore it is already incumbent on bus and boat operators to afford these rights to the passengers. It is not clear why a separate sanction system should be needed for those in breach, or even why a new government office need be created to handle potential complaints. There already is a system for handling complaints of regulations breaches and for meting out penalties: it is called “the court system”. Both Austria and Luxembourg have already “implemented” those.

Germany

is being referred to the ECJ for requiring sellers of pyrotechnic goods to notify a research institute and sometimes requiring additions to the instructions manual. This is said to create barriers to trade.

Our verdict: Goods such as pyrotechnics (e.g. fireworks) are already under much regulation, due largely to its ability to be used as a weapon and cause harm to third parties. It is ironic that “having to notify” and “occasional additions to instructions manual” are singled out as “barriers to trade” in the EC decision. Mere notification (with no further certification necessary) seems a trivial burden, in light of so much other admin imposed on pyrotechnics trading by the EU. Multilingual instructions manuals are themselves barriers to trade, especially for everyday use products. Here at least some extra text may be justifiable on genuine safety grounds (and even then it is a trivial one-off cost at the packaging design stage). Above all, however, neither are really barriers to cross-border trade. The same obligations apply to domestic and foreign producers, so the German system does not discriminate anyone (unlike the case of referring Portugal to the ECJ for effectively taxing foreign cars more.)

Slovenia

is being issued a reasoned opinion for failing to issue a National Energy Efficiency Action Plan and long-term strategy for mobilizing investment in the renovation of the national stock of residential and commercial buildings.

Our verdict: The 2012 Energy Efficiency Directive forces member states to introduce programmes to achieve certain energy savings by 2020. Slovenia has already incorporated the Directive into national law, and Slovenian companies therefore already have to comply: producing extra instructions manuals (!- see our note on German pyrotechnics above) on how to use a product more energy-efficiently, participating in recycling programmes for old appliances and even windows, etc. However, the issue is that all this has not been converted into an official “National Plan”, a bureaucratic report that itself is only a non-binding collection of promises and ideas. This is of little practical consequence. History suggests that most plans are not achieved anyway. We predict that this case is unlikely to reach the stage of a legal action. Slovenia will produce such report, for the report’s sake. Anyone can produce a plan, but it’s burdensome. Slovenia is one of the smallest EU countries and a stream of constant reports and mandated brochures is especially costly under such circumstances. Population giants like Germany or France can afford to take five out of 80 or 60 million people away from the economy and make them work on such a report. Slovenia will now lose 5 people out of mere 2 million. A much heavier burden.

United Kingdom

is being issued a reasoned opinion to stop exempting tiny cider producers from paying the ethanol tax.

Our verdict: We have consistently argued throughout our assessments that arbitrary tax exemptions are bad, especially if they are selectively applied to particular firms, industries or countries. However, this “exemption” is somewhat different, for at least two reasons.
• Agriculture is a field already so full of special treatments and exemptions that it is usually difficult to establish what is the default from which an exemption is made
• The exemption only applies to what are essentially hobby producers, the market value of their annual production is never more than €10,000, with costs often even exceeding that. An argument can be made that they should not have been included in a “producer” tax in the first place. (Otherwise leaving one’s apple juice too long would make one liable to tax).
English cider is rather UK-specific commodity with little cross-border trade, so single market isn’t really affected. Above all, however, the single market in alcohol is already so “unbalanced” by the different rates of ethanol tax that this could not make a dent even if it wanted to. (A 0.75L bottle of wine, for example, is taxed at €3.20 in the UK and at €0.04 in France.)

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