In the Annual Growth Survey for 2013, the European Commission advises Member States to shift taxes away from areas that impede growth such as labour and corporate taxes towards growth-friendly taxes on consumption and the environment. The Survey also recommends broadening the tax base by removing tax breaks, exemptions and hidden tax subsidies. The Commission also recommends limiting the use of reduced VAT rates to provide Member States with new revenue without any need for further standard rate increases.

At EU level, a fundamental reform of the VAT system is currently underway, in order to make it simpler, more efficient and more robust (see IP/11/1508). As part of this reform, the Commission is carrying out a review of reduced VAT rates, to see whether they are all still justifiable. According to the Commission, if all reduced rates were removed, the standard rate could actually be lowered by up to 7.5 percentage points in some cases, without any impact on overall revenues.

The Survey also recommends improvements to tax collection and compliance, particularly through the fight against evasion and the removal of tax bias which encourages debt. The Commission sees the favourable tax treatment of mortgages as one of the contributing factors to over-investment in real estate and the housing price bubble. Tax incentives which favour the use of debt over equity in companies is also viewed negatively by the Commission and the message in the survey is that tax induced incentives for debt financing should be reduced and debt bias in corporate and housing taxation kept under control.

The Annual Growth Survey is designed to feed into national economic and budgetary decisions, which Member States will set out in Stability and Convergence Programmes (under the Stability and Growth Pact) and National Reform Programmes (under the Europe 2020 strategy) in April 2013. These programmes will form the basis for the European Commission's proposals for country-specific recommendations in May 2013.

Further details are published in the Europa press release statement.