Minimum tax as a punching bag for authoritarians –

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After the Polish government released billions in stimulus funds by hijacking the EU’s corporate minimum tax directive with its veto, the Hungarian government is now trying to do the same.

While the Minimum Corporate Tax Directive might be a random victim of right-wing governments’ greed for money, it is a fitting victim of undemocratic authoritarianism.

The Minimum Tax Directive aims to implement one of the pillars of an international agreement to curb the global race to the bottom in corporate taxation by ensuring that all profits of large corporations are taxed at least 15%.

Exchanging one veto for another

However, the directive that should implement this uniformly at EU level has been blocked by the Polish government. Officially, the government has said it wants legally binding assurances that the other pillar of the global tax deal will also be implemented before agreeing to lift its veto on the minimum tax directive.

More realistically, the Polish government wanted to increase the pressure to release EU funds, blocked due to rule of law issues, which should fund Poland’s recovery from the pandemic. Once the European Commission released the funds, the Polish government lifted its veto even though it failed to obtain the legally binding assurances it had professed to want so badly.

However, hopes that this would pave the way for the directive to be passed proved premature, as the Hungarian government, whose stimulus funds are also blocked due to rule of law concerns, suddenly opposed the directive last week.

“You Try It”

“It’s a negotiation tactic,” said an EU official, adding that “if you are Prime Minister Orbán and you see that in the case of Poland it works, you try it.”

It is likely that the Minimum Tax Directive will be the random victim of authoritarian governments trying to extract money from the EU while going unpunished for their breaches of the rule of law. But he’s a fitting victim nonetheless.

“The establishment of a global minimum taxation must be a goal that unites us. We must ensure justice and fairness for both our economies and our societies,” Economy Commissioner Paolo Gentiloni told the European Parliament during a debate on the subject this morning.

Enjoying a fight

The rather bland statement masks an existential truth.

Democracies cannot flourish fairly and equitably if they are in constant competition for capital. Global corporate tax competition pits democracies against each other, disproportionately favoring capital at the expense of all spheres of society that would benefit from the greater availability of public funds.

The big ones win as long as the little ones fight.

While global tax competition is not some sneaky top-down ploy, right-wing authoritarians should be rather familiar with this dynamic as they use the same principle for their domestic politics, pitting middle and working class voters against other weak parts of society. , for example by making immigrants and other minorities the scapegoats for all sorts of societal ills.

One of the ways out of this situation would be to reduce the possibilities of unilaterally destroying attempts at cooperation, for example by removing unanimity requirements for EU decisions.

Since the EU can only decide on tax matters unanimously, it is unable to react effectively to the challenges posed to it by the authoritarians.

During the parliamentary debate this morning, the French Minister for Europe, Clément Beaune, reminded parliamentarians that while Paris was in favor of changing the unanimity rule, particularly in tax matters, there was a problem: “To get out of unanimity, you need unanimity”.

On Friday June 24, EU leaders are expected to give Croatia its final green light to join the eurozone after the European Commission gave its positive assessment when publishing its convergence report earlier this month.

Thus, if all goes as planned, Croatia will be able to introduce the euro on January 1, 2023.

In some ways, however, Croatia is already more euroized than many eurozone economies. Eurostat figures show that Croatian businesses already use the euro in their trade with partners outside the EU, and more than the EU average.

Graphic by Esther Snippe

In fact, only Slovenia has a higher euro usage rate than Croatia in the EU as a whole. This may, however, have less to do with Croatian business enthusiasm for the euro than with the fact that Croatia is not a global trading power like Germany, for example, which uses the US dollar more often in its relations with trading partners outside the EU.

While the main destination countries for German exports were the United States and China in 2021, Croatia’s main export destination outside the EU was its neighboring country, Bosnia and Herzegovina.

Germany’s main trading partners may be less inclined to trade in euros. Meanwhile, the Bosnian currency is pegged to the euro, which makes trading in euros a more natural choice.

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