Majority Voting on Taxation Could Prove Explosive for European Integration

Majority voting can leave outvoted EU Member States feeling disadvantaged and jeopardise political cohesion in the EU, according to EconPol researcher Friedrich Heinemann (ZEW – Leibniz Centre for European Economic Research, Mannheim).

In an opinion article for EconPol, Professor Heinemann examines the central arguments put forward by the European Commission in favour of majority voting for tax policy decisions. The Commission’s criticism of unanimity voting is, he says, unconvincing and misleading.

“Unanimous agreements offer immense advantages, especially when it comes to tax policy,” says Professor Heinemann. “Unanimity protects single Member States against majority exploitation and guarantees that only ideas that actually benefit all EU states get signed into law.”

EU harmonisation may seem attractive from the perspective of high tax countries as they may hope to limit competition from low-tax countries, he continues. But it is questionable whether an upward convergence of taxes and government spending would be good for the international competitiveness of the EU.

In addition, notes Prof. Heinemann, current harmonisation projects have redistributive effects. The creation of the common consolidated corporate tax base (CCCTB) currently under discussion would significantly shift tax revenue between Member States and allow a majority of countries to push through a beneficial tax base allocation formula at the expense of an out-voted minority.

“The Commission argues that majority decisions in tax policy can bolster EU cohesion,” he says “But this hope is based on an erroneous assumption: In reality, the rejection of unanimity could even prove explosive for European integration.

“A major argument of the Brexit campaign was that the UK gives more to the EU than it receives. Though the net difference is small, the campaign’s success shows that even minor fiscal burdens can prompt a country to turn its back on the EU. The potential redistributive effects of expanded EU taxation rights would greatly exceed current net payments into the EU budget.  The unanimity requirement ensures that a country does not have to exit the EU to escape unacceptable fiscal burdens.”

Majority voting significantly increased East-West tensions in EU refugee policy, Prof. Heinemann points out, adding: “Majority voting in tax policy would most likely generate new animosity between Western and Eastern Europe because Member States in the east often follow a low tax policy. Only unanimous tax decisions can prevent the emergence of substantial political risks and provide a guarantee that EU tax policies benefit all Member States.”