Sustainability-oriented EU Taxes – A European Net Wealth Tax Krenek, Alexander, and Schratzenstaller, Margit WIFO - The Austrian Institute of Economic Research FairTax Conference, September 19th, 2016, Vienna The project is funded by the European Union’s Horizon 2020 research and innovation programme 2014-2018, grant agreement No. FairTax 649439

Taxes on Property EU S: European Commission, 2016. Arithmetic averages.

Taxes on Property EU S: European Commission, 2016. Arithmetic averages.

Taxes on Property international S: OECD, 2015. Arithmetic averages. Austria: excluding one-off revenues from tax agreement with Switzerland.

Abolished net wealth taxes Country Tax subject6) Tax rates and exemptions Tax revenues in % of GDP1) Introduced in Abolished in Ireland Personal 1% Tax-exempted amount: Pounds 70,000 (€ 107,100 for singles; pounds 100,000 (€ 153,000) for couples; pounds 2,500 (€ 3,800) per child (exchange rates of 1977) 0.09 1975 1978 Austria 1% Tax-exempted amount: ATS 150,000 (€ 10,900) per family member; additionally ATS 150,000 (€ 10,900) for individuals over age 60 0.14 1923 1994 Corporations 1% Tax exemption limit4): ATS 150,000 (€ 10,900) 0.33   Italy 0.75% 0.29 1992 1995 Denmark 2.2% Tax-exempted amount: DKR 630,000 (€ 85,600) for adults or couples; DKR 630,000 (€ 85,600) per child (exchange rates of 1996) 0.06 1903 1997 Germany 1% Tax-exempted amount: DM 120,000 (€ 61,354) per family member 0.11 1893 0.6% Tax exemption limit4): DM 20,000 (€ 10,226) 0.13 The Netherlands 0.7% Tax-exempted amount: € 90,756 for individuals 0.18 1892 2001 and replaced by 30% income tax on a fictitious return of 4% on financial assets (corresponds to a net wealth tax of 1.2%) Finland 0.8% Tax-exempted amount: € 250,000 for individuals 0.08 1920 2006 Luxembourg 0.5% Tax-exempted amount: € 2,500 for adults; € 2,500 per child 0.55 1913 Sweden Personal Corporations 1.5% Tax-exempted amount: SKR 1.5 million (€ 160,351) for singles, SKR 3 million (€ 10,474) for couples 0.15% Tax-exempted amount: SKR 15,000 (€ 1,604) 0.19 0.01 1911 2007 Iceland 1.5% - 2% (above ISK 150 million (€ 1 million ) for singles, above ISK 200 million (€ 1.3 millions) for jointly taxed individuals) Tax-exempted amount: ISK 75 million (€ 0.5 million) for singles, ISK 100 million (€ 0.65 millions) for jointly taxed individuals (exchange rates of 2014) 0.48 1096/97 2015 0.60%

Existing net wealth taxes Country Tax subject6) Tax rates and exemptions Tax revenues in % of GDP1) Introduced in Modifications in Switzerland (Zurich)3) Personal Corporations 0.110%-0.657% Tax-exempted amount: CHF 77,000 (€ 73,389) 0.16425% 0.89 0.24 1840 (Canton of Basle City) Gradual introduction by all cantons between 1840 (Canton of Basle City) and 1970 (Canton of Glarus) Luxembourg Corporations 0.50% 1.5 1913 Major revisions in 1919 and 1941   Norway4) Personal 0.7% municipal level Tax-exempted amount: NOK 1 million (€ 106,200) for individuals 0.15 national level Tax-exempted amount: NOK 1.2 million (€ 127,500) for individuals (exchange rates of 2014) 0.3 1918 Increased in 2002 and replacement of uniform tax rate by progressive tax schedule at national level Decreased in 2007, 2008 Increased in 2009 and replacement of progressive tax schedule by uniform tax rate at national level Decreased in 2010, 2012, 2014 Spain 0.2% - 2.5% (above € 10.696 million) Tax-exempted amount: € 700,000 for individuals 0.11 1977 Abolished in 2007 Re-introduced temporarily in 2011, since then prolonged several times France 0.5% - 1.5% (above € 10 million) tax-exempted amount: € 800,000 for individuals 0.24 1982 Abolished in 1986 Re-introduced in 1989 Decreased in 2012 Increased in 2013 Sources: OECD (1979 and 1988); Messere, De Kam and Heady (2003); Bundesministerium der Finanzen (2016); Ernst & Young (2014); own research and compilation. – 1) For abolished taxes: last year of existence. – 2) Due to lack of comprehensive information, the modifications recorded here may be incomplete for some countries. Modifications may be in the form of variations of the tax rate or of the size of tax exemptions – 3) Levied by cantons at differing rates. – 4) Above this threshold, the whole taxable net wealth was liable for taxation. – 5) Initially limited to two years; most recent extension until 2016. – 6) Personal: at individual or household level.

Rationale for a EU net wealth tax Trend of increasing wealth concentration at the top end of the wealth distribution Tax enforcement problems at the national level System of own resources does not contribute to central EU objectives: “smart, sustainable, inclusive growth” according to Europe 2020 strategy

Sustainability-enhancing properties of a EU net wealth tax EU wealth taxation would contribute to three of the four sustainability dimensions defined in Schratzenstaller et al. 2016 Social sustainability Economic sustainability Institutional/cultural sustainability

Social sustainability Social inclusion Equality of opportunity Reducing social/political externalities caused by increasing wealth inequality

Economic sustainability Efficiency Growth Efficient allocation of resources Macroeconomic stability

Institutional/cultural sustainability Popular support for institutions combatting inequality in order for efficiency-oriented reforms to be successful in the long-run Tax compliance Tax morale

Estimation of potential revenues Household Finance and Consumption Survey (HFCS) combined with rich lists (e.g. Forbes Magazine) will be used to estimate the top tail of wealth distribution in 15 Euro countries. Applying a simple, progressive tax schedule with a tax rate of one percent for net household wealth above € 1 Mio two percent for net household wealth above € 5 Mio

Conclusion The increasing concentration of wealth, the increasing difficulties of national governments to effectively enforce (potential) wealth taxes and the lack of sustainability orientation of the EU system of own resources lend support for the introduction of a EU net wealth tax which should replace parts of the member states current GNI contributions to the EU budget.