EU should promote comprehensive reforms to its tax structure, recommends IMF

The International Monetary Fund (IMF) recommends that the European Union (EU) promote an urgent and comprehensive reform of the fiscal structure, with the aim of increasing the bloc’s resilience to economic shocks in the face of rising interest rates.

In a report released this Monday (5), the IMF argues that the EU should create rules that allow “ambitious and quick” responses to the challenges, without harming the sustainability of public debt.

For experts, the new rules can avoid a public debt crisis that would have “destabilizing effects” and even threaten the European integration project.

“The review must be economically sound and politically acceptable, building on lessons from several previous attempts to improve tax rules,” the document highlights. “It will be fundamental to balance the respect for the sovereignty of national tax policies, reinforcing the incentives for the adoption of sound policies for the EU”, he adds.

Among the proposals, the IMF suggests that countries accelerate the process of adopting a ceiling of 3% of Gross Domestic Product (GDP) for deficits and 60% for debt. The idea would be to allow countries with less severe fiscal risks to have greater flexibility in adopting the device.

“The framework would encourage the build-up of fiscal buffers that allow significant flexibility to respond to adverse shocks and drive a counter-cyclical policy,” he says.

The Fund also proposes that all EU members be required to implement medium-term fiscal adjustments and spending ceilings.

The plan would strengthen the role of independent fiscal councils, which could endorse macroeconomic projections, assess risks and ensure the consistency of reforms.

The institution also recommends increasing fiscal capacity to expand macroeconomic stabilization.

For the IMF, the context of economic uncertainties makes reforms even more urgent.

Extending the so-called escape clause to 2023 opens a window for changes to be made. “This opportunity should not be missed,” the report stresses.