cation of functions between government tiers. When (and if) fully implemented, such pro-
posal would require resources near to ten per cent of GDP at the EU level,33 something less
than 25 per cent at the Nation level, and near about to 15 per cent for local tiers, provided that
the total amount of public resources would more or less remain at to-day figure.
Going on with this parable, we can now speculate that EU current resources should be in-
creased up to near three points of GDP. The GDP contribute will cease to be in force but it
might be more than compensated by attributing to EU level the total revenue accruing from
VAT on imports from outside the Union itself together with the yields from the (increased)
environmental levies. The new additional financial tools should be outlined according with
sound criteria of tax design and fiscal federalism. Our choice is twofold, and seriously takes
into account the previously outlined requirements about tax reforms being growth and fairness
enhancing. First, for the working of a government that appears to be so distant from its citi-
zens, a part of new revenues should be highly visible and keep politicians for their use. This
task may be better performed by a EU VAT rate, that is made explicit to consumers, than by a
sharing to income tax revenues, which on the contrary is hidden in the withholdings on labor
incomes. At the moment such withholdings account in fact for three fourth of total tax yield.
The VAT rate should be set at level that is sufficient to pay out for the “Safety net,” thus giv-
ing further visibility to EU social protection and must add to present national rates. We know
that this would mean three-to-four points in GDP terms. The second leading principle should
be to directly attribute to the EU level those taxes that most require highly puzzling (e.g. Keen
1996; Haufler 1999) coordination, i.e. corporations and income capital taxes. Taking into ac-
count the need to alleviate corporation tax, altogether they could amount to about four per
cent of GDP and should be set around an even same rate34 (20 to 25 per cent). This rate
should be applied to any kind of capital incomes (interests, dividends, capital gains) to be per-
ceived though final withholdings. It could realize an acceptable “Dual income tax system,”
provided that income tax average rate was computed by Wagstaff et al. (1999) to range from
nine per cent (France) to 33 per cent (Sweden), an average European un-weighted rated being
at about 15 per cent.
33 This amount is quite close to both US and Canadian figures and could make EU budget adequately exogenous
macro-shock absorber.
34 The proposal to shift Corporation tax at EU’s level is certainly not new (e.g. Albi et al. 1997) and recently has
been authoritatively brought in again (Cnossen 2002).
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