2010 TMF EU VAT Tracker forecasts further tax rises

London, 16 September 2010

The latest annual TMF EU VAT Tracker is now forecasting new increases in European consumption tax as member states struggle to control spiralling deficits.  The average GNP-weighted VAT rate is set to break through the 20% level, compared to less than 19% in 2009.

Following large increases in 2010 in Spain, Portugal, Greece, Romania, the Czech Republic and Finland, the VAT Tracker is set to continue its ascent in 2011 with announced rises in the UK, Poland and Slovakia. 

 Data sources: IMF WEO; Europa, EU Member Standard VAT Rates

Crippling EU deficits force emergency VAT rises

The annual TMF EU VAT Tracker charts changes in standard VAT rates throughout the 27 European Union countries.  Since the start of the current financial crisis in 2007, it has highlighted the sharp rise in VAT rates across the region as countries have sought to reassure panicked financial markets of their intent to restore balanced budgets.

Whilst politically unpopular, VAT increases are also seen as the perfect solution to funding cuts in job-destroying business taxes (i.e. payroll and corporation tax).  For example, Germany’s 2007 3% VAT increase was matched by cuts in social security charges, and the UK’s 2.5% increase in 2011 will help fund a reduction in corporation tax from 28% to 24% over the next four years.

Governments across the EU have always wanted to raise VAT as they look to switch the tax burden from employers to consumers and fight globalisation pressures.  Low tax economies of the East have been luring the large employers out of Europe for years.  The spiralling deficits and spooked financial markets seem to have given cover for this strategy.  There seems little doubt that there will be more rises announced as financial markets scrutinise budget consolidation plans.  After the UK and Spanish hikes, many of the other ‘Western’ states will be investigating their options.

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