On first viewing, my instinctive reaction would be to punch the air with triumphal joy:
Flat taxes, once a fantasy of free-market ideologues, are sweeping across the European Union and could be introduced in more than 10 of the bloc’s 25 member states.
The European commissioner for taxation, Laszlo Kovacs, described flat taxes, – one rate for all income and corporate taxation – as “absolutely legitimate” and said Western European nations may be tempted to adopt them. His comments will fuel debate that low-tax, low-cost economies of the East are undercutting Europe’s industrial heartland.
However, and in my experience, this needs a second viewing and even a third viewing.
First off, what they are sloppily referring to here is not ‘flat tax’ but actually ‘flat-rate tax’. The prospect of a flat tax (however remote) would most certainly have me breaking out the bubbly.
Secondly, let us assume that Mr. Kovacs and his posse somehow manage to persuade Western Europe’s nabobs to swallow this idea and go with the flow. I would not put it beyond them to agree to a flat-rate tax and then set the rate at 60%. The fate of politicians in Western Europe is decided almost entirely by their bloc-vote public-sector clients and they are not going to kick them in the teeth any time soon or at all.
Thirdly, there is no mention at all of what happens to the various extant reliefs and allowable deductions. A great deal of the complexity in the tax system results not from calculating the rates but negotiating the brain-fryingly difficult issues of the applicability of reliefs and the legitimacy of deductions. Hence, simply establishing a ‘flat-rate’ will not simplify the system to any material degree. Furthermore, it is only those reliefs and deductions which save many businesses and self-employed people from being bled white.
This could all turn into a lamentably hollow ‘victory’. I can easily see HMG apparently agreeing to a ‘flat-rate tax’ and even agreeing to set it at a reasonable level and, while we are all celebrating, promptly announce the abolition of all reliefs and deductions which would result in a great many people paying a lot more tax and not less.
No, I am not happy. Not yet anyway. There are far too many devils lurking in the detail.