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Shifting tax from labour to mineral resources – a realistic policy?

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Shifting the tax burden from labour to the use of resources may, at first glance, look like an interesting proposition. In the EU context, however, this is just a smoke screen for yet another tax increase.

The European Commission insists that the tax neutrality would be observed if such a scheme were to be developed. This cannot, however, be the case in industries which, like the cement industry, make an intensive use of mineral resources but are characterised by a low labour intensity. Given the total weight of mineral, non-energy resources needed to make cement, the cement industry would be seriously penalised.

Would that burden be effectively applied to reduce taxation of labour? There are good reasons to doubt that it would be the case. As taxation of labour is not within the powers of the EU, the latter has no possibility to ensure that the new tax revenue would be applied to this objective.

In our opinion, it is unlikely that, in order to achieve its policy objective, the European Commission would propose, as such, a fiscal measure. This would require a unanimous vote in Council, a hurdle which may prove insuperable. It is tempting, therefore, to go for a market based instrument. This would be easier to pass as a qualified majority vote would suffice and would offer the European Parliament a real role to play in co-decision. The doubts regarding tax neutrality, however, would remain and the impact upon industries like the cement industry would add another layer of cost, making the EU less attractive to new investment.

More information: see Eurobrief article "Commission Roadmap to Resource Efficiency published"