The new EU tax regulations could give countries a

Reading time: 3 minutes

The European Commission will present in the second half of October the proposed changes to the EU’s tax regulations, which will probably give countries an individual rate of debt reduction, EC Vice-President Valdis Dombrovskis announced on Saturday, Reuters reports, according to TVR News.

EU tax regulations provide for the protection of the value of the euro by limiting government borrowing. In March 2020, the European Union suspended the application of the rules of the Stability and Growth Pact. Among the obligations that the EU member states no longer have to comply with is the famous rule that requires the public deficit not to exceed 3% of the Gross Domestic Product, as well as the obligation to keep the public debt below the threshold of 60% of GDP .

After the meeting in Prague of the EU finance ministers, Dombrovskis declared that the main objective of the regulations will remain the guarantee of the sustainable level of the public debt.

“Thus, fiscal adjustments, reforms and investments will be necessary. All these three elements should be combined, so as to reach a sustainable, realistic and gradual reduction in the level of public debt”.

explained the EU official, indicating that more attention will probably be paid to government investments.

After the suspension of budgetary discipline rules, member states announced public spending worth billions of euros to help health systems and support economies, companies and the labor market to cope with the impact of the coronavirus pandemic

Currently, debt levels in EU bloc countries range from around 185% of GDP in Greece and around 150% of GDP in Italy, to just 18.1% of GDP in Estonia and 24.4% of GDP in Luxembourg.

“Taking into account the different level of debt among EU member states, there cannot be a one-size-fits-all approach. There must be more room for maneuver for member countries, but within a common set of regulations”,

Dombrovskis said.

It is a significant change from current EU fiscal regulations, with analysts saying current debt relief regulations are not feasible for highly indebted governments.

“Regulations must be clear, they must be enforceable, which means they must be realistic. Whatever changes we make, we have to make sure they are realistic.”

said the Czech Minister of Finance, Zbynek Stanjura.

The European Commission will propose simplifying the regulations, by focusing on a single observable indicator, such as the expenditure criterion, explained Dombrovskis.

The spending benchmark is a regulation that allows governments to increase spending each year at the rate of potential economic growth – the rate at which an economy grows without generating excessive inflation.

That way, when the economy grows faster than potential and overheats, lower spending helps cool it down. When the economy is growing below potential, higher government spending helps it recover.

And the International Monetary Fund proposed that each EU member state have a different rate of debt reduction.

“The speed and ambition of fiscal adjustments will be linked to the level of financial risks”,

it is stated in the IMF proposal.

The level of risk should be established through a sustainable analysis of the debt, with a common methodology, developed by a new and independent European Fiscal Council, or by the deputy finance ministers of the EU, grouped in the Economic and Financial Committee (CEF) of the community block.

“Countries with a higher fiscal risk should converge towards a zero or positive budget balance in the next three to five years. States with a lower fiscal risk and a debt level below the 60% of GDP threshold should have more flexibility, but still need to consider risks when making their plans.”

appreciates the IMF.