In a stark warning for the upcoming emergency Budget on 22 June VAT rates in Europe are being ratcheted up as governments wrestle with ballooning deficits and panicked financial markets. This fulfils a long-term shift of the tax burden from business to consumption in an attempt to hold onto internationally mobile corporations.
Globalisation drives indirect tax shift
Over the past five years Western European countries have been faced with stiff competition from low-tax territories — from new EU accession states and emerging countries. This led to a number of VAT rises to fund cuts in job-destroying business and payroll taxes.
Leading the charge was Germany which increased its VAT rate by 3% to 19% in 2007.
However the spiralling inflation of 2007 and then the credit crunch in 2008 cut short these plans as treasuries fretted over the impact on the vital consumer sector.
Spiralling government...
