Dec 7, 2010, 11:54 AM
The VAT is a sort of turbo-charged national sales tax on goods and services that is applied at each stage of production, not merely on retail transactions. Politicians love it because it is the most efficient revenue-raiser known to man, and its rates can be raised gradually to finance new entitlements or fill budget holes. The VAT is typically introduced with a low rate but then moves up over time until it swallows huge chunks of national economies.
E&Y finds that rates have been rising again, especially since the financial panic and recession. E&Y says standard VAT rates now average a knee-buckling 21.6% in the European Union, up from 19.4% in 2008. Average standard rates in the industrial countries of the Organization for Economic Cooperation and Development have climbed to 19.2% from 17.8% in 2009...
While VAT systems are often presented as models of simplicity that theoretically treat all goods and services alike, politicians can’t resist picking winners and losers, creating higher or lower rates for industries at their whim. “The politicians always start running with exemptions,” says E&Y’s Gijsbert Bulk...
In Luxembourg, renovation of rented dwellings triggers a relatively low 3% VAT, though the country’s standard rate has recently moved to 17% from 15%. Following a court fight in Ireland, the VAT exemption for golf greens fees has recently been expanded to cover visitors at nonprofit clubs. Meanwhile, cleanliness is now more expensive in Spain, as E&Y reports that the VAT rate on “certain sanitary products” has been lifted to 21% from 10%.
“We don’t need new taxes. We need new taxpayers, people that are gainfully employed, making money and paying into the tax system. And then we need a government that has the discipline to take that additional revenue and use it to pay down the debt and never grow it again.”