Lump-sum tax as EU Own Resource ‘FISCAL EU’: FAIR, SUSTAINABLE AND COORDINATED TAX AND SOCIAL POLICIES An international research consortium working on alternative tax policies and new fiscal models for building the future of EU Lump-sum tax as EU Own Resource Marian Dobranschi, Danuse Nerudova and Veronika Solilova The project is funded by the European Union’s Horizon 2020 research and innovation programme 2014-2018, grant agreement No. FairTax 649439

The concept of Lump-sum tax Hindricks and Myles (2004) the idealized redistribution instrument to compare with current direct and indirect taxes Graaf (2008) theoretically the most efficient and costless tax Rothbard (2006) simple to impose and collect Hillman (2009) – the zero excess burden tax, no deadweight loss and no substitution effect Gans et. al. (2014) – non-distortionary per capita tax

Potential contribution of EU lump-sum tax to close sustainability gaps in the EU How can EU lump-sum tax contribute to sustainability-oriented taxation in the EU? Current sustainability gaps of taxation in the EU High and increasing weight on labor taxation Decreasing progressivity of tax system – increasing regressivity and weak power of redistribution Increasing the importance of corrective taxation Decreasing the company tax competition Increasing tax compliance and reducing the tax fraud

Table no.1 The EU lump-sum tax revenues potential estimation using 2014 level of population Ls (1 Euro) Ls (1 Euro Cent/day) Ls (5 Euro) Ls (10 Euro) Ls (100 Euro) Million Mil. Euro EU (28 countries) 506.94 1850.35 2534.72 5069.44 50694.41 Belgium 11.20 40.89 56.02 112.04 1120.40 Bulgaria 7.25 26.45 36.23 72.46 724.57 Czech Republic 10.51 38.37 52.56 105.12 1051.24 Denmark 5.63 20.54 28.14 56.27 562.72 Germany 80.77 294.80 403.84 807.67 8076.75 Estonia 1.32 4.80 6.58 13.16 131.58 Ireland 4.61 16.81 23.03 46.06 460.55 Greece 10.93 39.88 54.63 109.27 1092.68 Spain 46.51 169.77 232.56 465.12 4651.22 France 65.89 240.50 329.45 658.89 6588.91 Croatia 4.25 15.50 21.23 42.47 424.68 Italy 60.78 221.86 303.91 607.83 6078.27 Cyprus 0.86 3.13 4.29 8.58 85.80 Latvia 2.00 7.31 10.01 20.01 200.15 Lithuania 2.94 10.74 14.72 29.43 294.35 Luxembourg 0.55 2.01 2.75 5.50 54.97 Hungary 9.88 36.05 49.39 98.77 987.74 Malta 0.43 1.55 2.13 42.54 Netherlands 16.83 61.43 84.15 168.29 1682.93 Austria 8.51 31.05 42.53 85.07 850.69 Poland 38.02 138.77 190.09 380.18 3801.79 Portugal 10.43 38.06 52.14 104.27 1042.73 Romania 19.95 72.81 99.74 199.47 1994.73 Slovenia 2.06 7.52 10.31 20.61 206.11 Slovakia 5.42 19.77 27.08 54.16 541.59 Finland 5.45 19.90 27.26 54.51 545.13 Sweden 9.64 35.20 48.22 96.45 964.49 United Kingdom 64.35 234.88 321.76 643.51 6435.12

Table no. 2. The comparison between lump-sum potential and the EU budget from 2014   EU-28 EU Budget 2014 Lump-sum Tax Replace Ls (1 Euro) Ls (1 Euro Cent/day) Ls (5 Euro) Ls (10 Euro) Ls (100 Euro) Bil. Euro 0.51 1.85 2.53 5.07 50.69 Euro % VAT-based own resource 17.67 34.85 2.87 10.47 14.35 28.69 286.94 GNI-based own resource 99.08 195.44 1.87 2.56 5.12 51.17 Traditional own resources (TOR) (75%) 16.43 32.41 3.09 11.26 15.43 30.86 308.56 Customs duties (100%) 22.00 43.39 2.30 8.41 11.52 23.04 230.45 Amounts (25%) retained as TOR collection costs (-) 5.54 10.93 9.15 33.38 45.73 91.45 914.52 Other revenue 9.97 19.67 5.08 18.55 25.41 50.83 508.30 Gross National Income (GNI) 139.22 274.62 0.36 1.33 1.82 3.64 36.41 TOTAL own resources 132.96 262.28 0.38 1.39 1.91 3.81 38.13 TOTAL national contribution 116.53 229.87 0.44 1.59 2.18 4.35 43.50 TOTAL REVENUE 143.94 283.94 0.35 1.29 1.76 3.52 35.22 TOTAL EU EXPENDITURE 128.56 253.61 0.39 1.44 1.97 3.94 39.43 TOTAL Expenditure 142.50 281.09 1.30 1.78 3.56 35.58 Surplus from previous year 1.01 n/a

Table no. 3 The lump-sum tax potential applied on EU citizens and non-EU resident tourists in 2014 GEO/TIME Non-EU tourists EU Population Ls (1 Euro) Ls (5 Euro) Ls (10 Euro) Ls (100 Euro) Million Mil. Euro European Union (28) 338.80 506.94 845.74 4228.71 8457.41 84574.12 Belgium 7.89 11.20 19.09 95.46 190.91 1909.14 Bulgaria 2.79 7.25 10.04 50.19 100.37 1003.73 Czech Republic 8.10 10.51 18.61 93.04 186.08 1860.83 Denmark 2.47 5.63 8.09 40.46 80.93 809.27 Germany 32.86 80.77 113.63 568.14 1136.27 11362.70 Estonia 1.98 1.32 3.30 16.50 32.99 329.91 Ireland 2.24 4.61 6.85 34.24 68.48 684.83 Greece 14.40 10.93 25.33 126.64 253.29 2532.87 Spain 52.36 46.51 98.87 494.36 988.71 9887.13 France 46.07 65.89 111.96 559.82 1119.63 11196.31 Croatia 11.44 4.25 15.69 78.43 156.86 1568.56 Italy 51.64 60.78 112.42 562.09 1124.18 11241.82 Cyprus 1.94 0.86 13.97 27.94 279.36 Latvia 1.43 2.00 3.43 17.16 34.33 343.25 Lithuania 1.36 2.94 4.30 21.50 43.00 430.03 Luxembourg 1.04 0.55 1.59 7.94 15.88 158.82 Hungary 4.62 9.88 14.50 72.48 144.95 1449.51 Malta 1.40 0.43 1.82 9.12 18.25 182.47 Netherlands 13.92 16.83 30.75 153.77 307.54 3075.42 Austria 22.25 8.51 307.53 3075.31 Poland 5.47 38.02 43.49 217.44 434.88 4348.82 Portugal 9.69 10.43 20.12 100.58 201.16 2011.56 Romania 1.91 19.95 21.86 109.30 218.59 2185.91 Slovenia 2.37 2.06 4.44 22.18 44.35 443.51 Slovakia 1.46 5.42 6.88 34.38 68.76 687.59 Finland 2.73 5.45 8.18 40.91 81.83 818.25 Sweden 5.46 9.64 15.10 75.50 151.00 1510.02 United Kingdom 21.85 64.35 86.20 431.02 862.05 8620.49

Table no. 4. The comparison between lump-sum potential (applied on EU citizens and non-EU tourists) and the EU budget from 2014 Lump-sum tax Replace Ls(1 Euro) Ls (5 Euro) Ls (10 Euro) Ls (100 Euro) EU-28 Bil. Euro 0.85 4.23 8.46 84.57 Euro % VAT-based own resource 17.67 20.89 4.79 23.94 47.87 478.70 GNI-based own resource 99.08 117.15 4.27 8.54 85.36 Traditional own resources (TOR) (75%) 16.43 19.43 5.15 25.74 51.48 514.77 Customs duties (100%) 22.00 26.01 3.84 19.22 38.45 384.46 Amounts (25%) retained as TOR collection costs (-) 5.54 6.55 15.26 76.28 152.57 1525.70 Other revenue 9.97 11.79 8.48 42.40 84.80 848.00 Gross National Income (GNI) 139.22 164.61 0.61 3.04 6.07 60.75 TOTAL own resources 132.96 157.21 0.64 3.18 6.36 63.61 TOTAL national contribution 116.53 137.79 0.73 3.63 7.26 72.58 TOTAL REVENUE 143.94 170.19 0.59 2.94 5.88 58.76 TOTAL EU EXPENDITURE 128.56 152.01 0.66 3.29 6.58 65.78 TOTAL Expenditure 142.50 168.49 0.58 2.97 5.94 59.35 Surplus from previous year 1.01 n/a

Conclusions Applicability of Lump-sum tax: low and affordable tax rate, efficient, broad tax base, horizontal equitable. In-applicability of Lump-sum tax: regressive, no vertical equity, unfair, politically difficult to enact, unpopular, tax administration costs when the tax rate is too low. There is an inseparable relationship between efficiency and equity. Lump-sum tax as EU Own resource cannot fully replace the current system of resources, but can constitute an additional (complementary) source of EU budget, along more viable taxes: FTT, CCCTB, Pigovian taxes.