24/11/2011 : Property taxation and enhanced tax administration in challenging times

Responding to two key challenges on the current agenda of taxation policy, the workshop discussed the role that property taxation and enhanced tax administration can play in addressing high consolidation needs, while optimising the impact on growth.

The overall theme of the workshop was how reforms in housing taxation and enhanced tax governance can contribute to two of the main current policy challenges, namely fiscal consolidation and enhancing the growth potential of the European economies. The conference ran two sessions: "Housing taxation" and "Efficiency of tax administration and improving tax compliance", followed by a general panel discussion on "Scope for fiscal consolidation arising from reforming tax administration and property taxation".

Lucio Pench, Director of the Fiscal Policy Directorate in the Commission's DG ECFIN, gave an introductory statement, stressing the topical importance of the two policy areas under discussion. Against the background of severe consolidation needs in many Member States, good tax governance was more than ever needed. Moreover, improving the growth-friendliness of taxation, including through shifting taxes from labour towards housing, was an important element to enhance the growth potential of the EU economies.

Gilles Mourre, Head of the tax policy unit in DG ECFIN, gave a keynote address presenting the main housing taxation and tax governance related results of the recently published Commission report "Tax reforms in EU Member States 2011". Sketching the wider context of the report, he pointed to the attention that the European Semester, the EU's framework for economic policy coordination, is paying to the design and structure of tax systems to make them more effective, efficient and fairer, while also taking into account that Member States may need to increase taxes.

The presentations and discussions in the session on housing taxation touched upon different forms of housing taxation and their characteristics with respect to economic efficiency/distortions, macroeconomic (de-) stabilisation and equity/distributional considerations. Three country-specific contributions provided insights into facts and reforms of national housing tax policies. The ensuing discussion focused on the link of housing taxation with macro imbalances and the efficiency of current housing tax provisions, including their impact on low income households. The discussion highlighted that favourable tax treatment of housing is capitalised in house prices, rendering housing tax incentives targeted at low income households rather ineffective. Given political economy related resistance against increasing housing taxation, limiting mortgage interest rate deductibility was suggested as one way forward in reforming housing taxation.

The session on tax administration and tax compliance discussed the main avenues in fostering voluntary tax compliance, improving tax administrations' efficiency, reducing compliance costs and complexity and safeguarding effective tax auditing and enforcement. The presentation on what makes taxpayers comply stressed the importance of third party information for compliance, as third party information can dramatically lower taxpayers' ability to cheat. Furthermore, this presentation highlighted that the sources of income and types of deductions are the most significant variables as audit selection criteria. Finally, the session underlined that tax audits have lasting positive behavioral effects on compliance of the audited taxpayer and that the perceived audit probability may be an important deterring factor. Country-specific presentations looked into experiences in combating the underground economy and the role of tax administration.

The concluding policy panel discussed the link between reforms in housing taxation and enhanced tax administration and fiscal consolidation. Panelists highlighted the importance of up-to-date valuation systems as a basis for an effective, efficient and fair taxation of housing property. As to tax governance, it was considered important to set the incentives right for voluntary tax compliance, including through an improved understanding of non-economic factors determining taxpayers' behaviour. One important conclusion was that, in particular at the current juncture, attempts to increase tax revenues need to be carefully balanced against long-term erosion of voluntary compliance and trust.