ECOFIN: Finance ministers discuss sustainability of public finances and harmonisation of direct taxes

On the second day of the informal ECOFIN Council meeting in Prague, EU Finance Ministers discussed the sustainability of public finances in European countries. Further development of the European framework for direct taxation to promote economic growth and remove obstacles to cross-border investment was also discussed.

A return to fiscal discipline and a call for the consolidation of public finances in EU countries on a sustainable track are among the main priorities of the Czech Presidency. Currently, the so-called escape clause from the rules of the Stability and Growth Pact is extended to 2023. This means that the European Commission will not fully apply the procedures in case of a breach of the fiscal rules for the maximum debt (60% of GDP) and deficit (3% of GDP). "Although we have moved smoothly from the covid crisis to the energy crisis, we should not postpone the debate on the return of European countries to fiscal discipline. Today, European governments naturally need to increase public spending to help households and businesses facing high energy prices. However, we must not completely ignore the significant deepening of public debts in the EU over the last 20 years," says Finance Minister Zbyněk Stanjura.

The debate also covered the current fiscal rules, which are becoming rather cosmetic with rising public debts and are not effectively enforced. "The Czech Republic, as a possible future member of the eurozone, will have to meet the debt criterion of up to 60% of GDP before joining. Even though we are currently complying with this rule with a debt ratio of 43% of GDP, it is very difficult to explain to the Czech general public the need for budgetary responsibility and compliance with EU fiscal rules when the current average debt ratio in the euro area is around 95% of GDP," Minister Stanjura added.

In the first part of the meeting, Mojmír Hampl, Chairman of the National Budget Council, also spoke on the topic of sustainability of public finances in EU countries: "It is undoubtedly gratifying that a fundamental discussion on the reform of budgetary rules among EU Ministers of Finance is taking place in Prague at the time of the Czech Presidency. It can influence the shape of fiscal policy in the EU for many years to come. This debate is all the more urgent because it is taking place at a time of extreme fiscal risks in the Union, arising from the energy and security crises, and at a time of unprecedentedly high inflation and rising interest rates and hence debt servicing costs. The problems of EU countries are similar in all these respects."

The issue of harmonisation of direct taxes was the second item on the agenda for Saturday's meeting. "As the presiding country, we opened a debate on whether, for some of the EU-wide measures taken in the field of direct taxation, a more effective way would be, for example, to recommend or share best practice instead of introducing blanket directives. They are generally able to be less responsive to the specificities of individual Member States. In such situations, there is a risk that the directive will only bring small benefits, which will be outweighed by administrative costs for entrepreneurs and the state," concludes Zbyněk Stanjura.