Taxes

In recent years, the Baltic States have been showcased as an austerity success story. While the whole world has seen countries such as Greece, Spain and Portugal struggling to reduce their public spending, Lithuania has been hailed as an austerity example. Lithuanian success in public spending cuts has been widely acknowledged; yet simultaneous tax increases and their harmful effects have received less attention. Since the end of 2011, however, the country once again found itself embroiled in a budget crisis and is now moving down the dangerous road of tax hikes.

If adopted as a new own resource of the EU budget the financial transaction tax (FTT) will significantly reduce the contributions of member states to the EU budget, according to estimates presented yesterday by the European Commission. Member States’ contributions would be slashed by €54bn in 2020.The Commission proposes that two thirds of the revenues of the FTT go to the EU budget, reducing by the same amounts Member States’ contributions based on their GNI, with the remaining one third being retained by Member States.

Last March 30, the Spanish Government announced its most important measures to reduce the fiscal deficit for 2012. These actions have been based on reducing public spending and, again, increasing taxes. “Again” because on December 30, 2011, the conservative new Government already raised the Personal Income Tax, making Spain one of Europe’s most heavily taxed countries.

Canada was recently elected by Forbes magazine number one country in the world to do business. Among other things, its corporate tax rate (federal and provincial rates combined) is at 25%, the lowest among G7 countries. But some provinces in Canada still have to be convinced that this is a move in the right direction. May be the fact that revenues from corporate taxes remain high, and even higher than it was before the cuts, will help them.

The Rajoy administration in Spain announced two months ago one of the largest tax increases in recent Spanish history. It aims to raise 6 billion euros ($7.9 billion) — along with a spending cut of nearly 9 billion euros ($11.8 billion). The measure mainly consists of a so-called solidarity surtax to come on top of tax rates on income and capital gains; it also includes an increase in real estate taxes.

is the drop of tax revenue in the UK compared with January 2011. The natural explanation that comes to mind is the increase of the marginal tax rate from 40…

On February 16th, 2012 the French Parliament has adopted its version of the so-called Tobin tax; a version that, some says, is partially based on the stamp tax levied in the City. The tax, to be effective August 1st, will be levied on all transactions involving equities from a French company if the capital of that company exceeds €1 billion and regardless of the place where the transaction is carried out. Hence, the tax concerns some 100 French companies publicly traded. Its rate is fixed at 0,1%.

As is publicly known, Mariano Rajoy, leader of the Spanish Partido Popular, recently became president of the Spanish government. Mr. Rajoy is poised to introduce new measures needed by the Spanish economy in order to, in first instance, stop the bleeding (in general terms, but in particular regarding unemployment rates), and subsequently, to initiate a new positive trend for the country, as a relevant part integrated in the European Union economy.? ? Among the urgent measures, those related to taxation are essential to achieve a balanced economy.

The first of February marks another harsh date for French real estate owners. From this day there are new taxation rules on capital gains realized with the sale of a second home or a land. While previously the capital gains were exonerated if the real estate is owned since more than 15 years, now this delay has been increased to 30 years. The tax on capital gains thus reaches 19% if the property is sold during the five first years after acquisition and the rate is progressively decreasing the following 25 years. One has to add to those taxes the social contributions.

Executive Summary

The current crisis includes two components: high indebtedness and low growth. No easy solution is in sight, since policy-makers are currently facing a double bind, since they need extra cash from the taxpayers and also lighter taxation in order to encourage entrepreneurship, the key ingredient in economic growth.