Last month the French finance minister Christine Lagarde cheerfully announced France’s intention to push for corporate tax harmonisation when it chairs the EU for six months from July. Since then the EU Commission and pro European politicians have toned it down to make sure businessmen don’t urge for a “no” in the Irish referendum on the constitution on 12 June. I trust the Irish will not be fooled.
Tax competition is the most effective method to keep government in check. As long as there is tax competition between states or regions politicians are unable to tax and spend as if there is no tomorrow. If the tax rate is lower over the border companies flee and jobs disappear – as recently illustrated by the relocation of several very large companies to Ireland. Thanks to the Irish Republic’s corporate tax rate of 12.5 % the impetus towards a lower corporate tax rate in the UK has become unstoppable.
Tax competition is any statist’s worst nightmare. France, never having been short of statists since time immemorial, now wants the tax base harmonised across Europe. That we do not live on planet Europe but on planet Earth has passed the little European by completely. If the UK – as always – gives in, and tax base harmonisation goes ahead, a compromise will result. We will end up with a medium harsh tax base regime, likely to be worse than the one we have. And in the world competition Europe will continue to slide down the economic prosperity curve.
As Churchill said: “For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle”.
Let’s say “no”, for once.