IREF

General assessment

Winning the September 2011-election on a promise of higher taxes, the centreleft government made good on election promises in the 2012-budget by increasing taxes by half a percent of total tax revenue. In the spring of 2012 further tax increases followed on cars and energy consumption. Increasingly, however, the tax hikes (implemented and promised) became unpopular with large parts of the population as well as the governments supporters in labour unions; and in the summer of 2012 the government and the right wing opposition agreed on an income tax reform which for the first time in many years actually lowered the overall tax burden. In many ways, the tax reform marked a turning point in the tax debate, and the 2013-budget surprisingly included a cancellation of a number of unpopular taxes.

While Estonia has rebounded well from the crisis and is still an attractive destination for Nordic companies there needs to be a political thrive towards keeping Estonia’s competitive advantage. In the time were our close neighbours are discussing possibilities for making their economic environment more friendly to entrepreneurs, the local government has to react accordingly. Although being known for progressive and bold economic reforms, Estonia has become to a halt over the recent years. To battle the rising taxes and the growing public sector significant changes must be enacted. Unless necessary steps are made the current 10% public debt is only the beginning of a race to catch up with the Western Europe.

In the spring of 2013, the Finnish government held its half-way assessment, in which it reviewed and revised the government policy program for the remaining two years of its mandate, until the next general election in 2015. The main focus was again on the taxation of dividends. However, the proposal put forth by the government was met with so much criticism that even the leader of the Leftist party, one of the governing parties, turned against it. The government quickly published a revised proposal, but at the time of this writing, it is still unclear what the final rules will look like. It seems clear, however, that excise taxes such as taxes on alcohol, sweets and tobacco will be raised. The government is still trying to shrink the deficit and improve employment, but it is doubtful if it will be successful.

France fiscal and budget policy: The only thing really new in 2012 was the President

2012 has been an election year: President Sarkozy left office last May and President Hollande took over. As explained in our previous report, from a fiscal and budgetary standpoint, the programs of the two candidates were rather similar: to bring deficit down essentially through tax increases. As further detailed below, the new President added a layer of new taxes and did not significantly reduce public spending nor introduced structural reforms. Public expenditures have actually increased by 2.9%. The results were as expected: a deficit above the target, zero growth and a gloomy prospect for 2013.

The Greek governments had followed expansionary fiscal policies for many years. The government spending remained at high levels, chronic budget deficits continued, tax collection weakened, and public debt exceeded the size of the economy. The global economic crisis that started to take hold in 2008 exposed the structural weaknesses of the Greek economy. After the eruption of the debt crisis, Greece has embarked on an adjustment program, aimed at tackling the fiscal imbalances. As a result of this effort, Greece has experienced the largest fiscal consolidation among all countries of the Euro area. Given the state of the real economy, the fiscal consolidation, required to restore sustainable public finances, should rely on curtailing public expenditures and strengthening the tax collection, instead of further increasing taxes.

There seems to be no respite to Italy economic and political torments. The year 2012 witnessed a deepening of the downturn of the economy. The Italian GDP declined by a huge 2.4%, brought mainly by a deep fall in the domestic demand. Increased taxes dented heavily household’s incomes, while gloomy domestic and international perspectives induced firms to postpone investment plans and families to increase precautionary saving. Public expenditure was not really cut but mainly postponed, particularly with reference to payments due by all levels of government to their providing firms, particularly in the health and construction sectors. Only exports had an appreciable resumption, showing the resilience of the Italian industrial sector.

2012 saw the stabilisaon of the economic situaon in the Republic of Ireland. Irish GDP retuned to growth with real GDP rising by 0.9 percent and real GNP rising by an unexpected 3.9 percent. The Budget for 2013 comes in the aftermath of three years participation in a bailout and stability adjustment programme implemented by the Troika (European Central Bank, European Commission and the International Monetary Fund). Contingent in this programme saw dramatic tax increases and spending cuts amounting to over €15bn or 9 percent of GDP. The adjustment measures were front loaded however, resulting in the majority of the measures being implemented during the ?rst two years of the programme, between 2011 and 2012. Thus, the Irish Budget for 2013 saw markedly fewer changes in comparison to the previous two years. VAT, income and corporate tax remain broadly untouched. Excise duties saw the bulk of tax increases, especially on alcohol, cigarettes, and petrol. The real story of the 2013 budget was the re- introduction of a property tax into the Republic, which has not been seen since 1977.

Unjusti?ed outside pressures A line must be drawn between, on one hand, what has happened and continues to happen in the country itself due to its own will and the decisions of its government and parliament and, on the other hand, what will shortly happen in the country because of decisions made by foreign governments.

The main objectives for the Norwegian Government’s tax and ?scal policies are, according to the Ministry of Finance, “… to secure public revenue, to help bring about a fair distribution of wealth, promote employment throughout the country and to improve the ef?ciency of the economy”.

The Government continues to propose rules aimed at further strengthening the tax system’s contribution to a “fair income distribution and to a better environment” (“green” taxes).

In November 2011, for the ?rst time in the post-socialist era in Poland, the incumbent government was re-elected for the second turn in the of?ce. The coalition of the Civic Platform (Platforma Obywatelska) and Polish People’s Party (Polskie Stronnictwo Ludowe) maintained suf?cient electoral support and, hence, received mandate to continue with the political legacy commenced in the late 2007. This was despite the fact that in many countries the incumbents were treated as scapegoats for triggering economic crisis (Greece, Italy – Silvio Berlusconi’s government) or pursuing austerity measures (France, Italy – Mario Monti’s government). Similar political turmoil did not occur in Poland since, contrary to the other EU countries, it did not experience recession in years 2009- 2011.