Flat-tax support spreads

Flat taxes, once a fantasy of free-market ideologues, are sweeping across the European Union and could be introduced in more than 10 of the bloc's 25 member states.

The EU Taxation Commissioner, Laszlo Kovacs, has described flat taxes - one rate for all income and corporate taxation - as "absolutely legitimate" and said Western European nations might be tempted to adopt them. His comments will fuel debate that low-tax, low-cost economies of the East are undercutting Europe's industrial heartland.

The regime is in place in Slovakia and the three Baltic states, which joined the EU last year, and is credited with helping them grow fast and creating thousands of jobs.

French politicians have led complaints about "social dumping" and the risk to their country's employment and social standards.

Kovacs, a former Hungarian foreign minister, said: "As far as the position of the EU is concerned, we consider it as absolutely legitimate because the EU does not tackle the issue of income and corporate tax rates.

"Four countries have introduced it and are satisfied, and they claim that it works properly. Some six or seven are considering flat taxes - that makes 10 or 11 member states that could introduce flat tax."

Flat taxes rely on simplicity: all those whose earnings exceed a threshold pay the same rate.

Sometimes, revenues have increased because fewer people take the risk of evading lower thresholds and there are fewer exemptions for accountants to exploit. Applying a basic - if regressive - system also saves time for citizens completing tax returns and for civil servants.

Kovacs did not name the nations considering flat taxes, although Hungary, the Czech Republic and Poland are known to be among them, and the issue has been raised in Cyprus and Malta.

Greek politicians have also debated the subject and Germany's opposition Christian Democrat Party discussed a simplification of the tax system - though it would not be a classic flat tax, but comprise three income categories. Policy advisers and political parties in the Netherlands and Spain have also given the idea a hearing.

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