TCS Daily

Intellectual Dumping

By Tomasz Teluk - August 24, 2004 12:00 AM

The European Union pushed by the French and the Germans, is moving toward becoming a tax cartel. Old Europe's bureaucrats want the elimination of tax competition and the creation of laws to exploit entrepreneurs.

A cartel is an organization created to eliminate competitors by market regulation and secure profits under the level calculated by the competition. We know about producers' cartels from economics. They manipulate production and price levels and they raise prices, thanks to their informal collusion. The EU in its present state could become a tax cartel. Dominant governments are trying to exert pressure on newly admitted countries to raise taxes to their level.

Bureaucrats have forgotten about classical economics and have created a new "science", which is not based on economic calculation but on permanent deficits that function on debt and on creative bookkeeping. To constitute the new cartel, they have created a new term called "tax dumping". In economics, dumping is the lowering of prices for sale to foreign markets. Producers sell for prices lower than on national markets to eliminate competition. "Tax dumping" - the term coined by finance ministers from Germany and France - means that Poland and other Central European countries have lower tax levels than other EU members. "Dumping", according to Hans Eichel and Nicolas Sarcozy, is what everybody else calls...competition! They accuse the Polish government of being too competitive in taxes. If anything, this is intellectual dumping.

At the end of May finance ministers Germany and France called on the European Commission to harmonize tax levels and to introduce a minimum level of corporate taxes and payments from the structural funds depending on fiscal policy (the higher taxes you have, you will get more money from EU budget). The supporters of this project are France, Germany, Sweden and Netherlands. Opposed are: CE countries, Great Britain and Ireland. The Polish Ministry of Finance is radically opposed to European tax regulations. According to the Global Competitiveness Report, Poland is at the bottom of the European countries list. Corporate income tax level is not the only marker of macroeconomic success. The idea of Commissioner Gunter Verheugen to pay out more money thanks to tax hikes is blackmail. Verheugen says that Poland and other countries infringe on the "conditions of equal competition". But if we raise the taxes as they want, and have equal tax levels, there will be no competition.

French and Germans do not know what is best for Poles or Estonians. Once again, Poland is forced to disprove the old argument that foreigners (Poles) deprive neighbors of jobs. It is embarrassing. The 19 percent income tax level in Poland is only for medium and small companies, not corporations paying 40 percent corporate tax. If Germany and France want to attract foreign investors they should lower their taxes rather than force other countries to raise them.

The goal of this "intellectual dumping" by the Sarcozy & Eichel duo is to turn the public's attention away from the real problems of the EU. It isn't lower taxes in the Central European countries but rather high taxes in Old EU 15, with their onerous market regulations and bureaucracy. France and Germany are allergic to economic reforms. They prefer to blackmail less political powerfully countries over restructuring their own ailing social security systems. But the EU will profit more from a liberalization of the economy than from interventionism. Governments in Berlin and Paris, not in Warsaw or in Tallin, are responsible for the continent's woeful economic situation.

If Sarcozy and Eichel want to improve the economy, they should reform their countries, liquidate the barriers to entrepreneurship, cut taxes and reduce the influence of labor unions. If they do not, it will not be surprising if investors prefer countries such as Poland where work costs are competitive. Europe should abandon its sclerotic status quo. Perhaps the disobedience of new member states could ignite an economic revolution in Europe.


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