Press Advisories

11. 3. 2009 8:44

ECOFIN Decide on applying reduced VAT rates

The ministers reached agreement on a short list that included, above all, labour-intensive local services, where all Member States should be allowed to permanently apply the reduced VAT rate.

The Economic and Financial Affairs Council, chaired by Czech Finance Minister Miroslav Kalousek, met in Brussels for the third time this year.

The Ecofin Council focused on the preparations for the spring summit of the European Union and adopted opinions on 21 stabilization and convergence programmes of EU Member States.

The Council assessed 11 stabilization and 10 convergence programmes and adopted its opinions. The recommendations for the Member States contained therein bear out the fact that even in the current difficult economic situation, the rules of the Stability and Growth Pact do apply. This year’s programme assessments also take into consideration the implementation of the European Economic Recovery Plan. The extent of the stimuli in the individual Member States varies depending on the funds currently available, which the Ministers agreed was a good approach. The implementation of the Stability and Growth Pact will be further discussed at the informal meeting of Finance Ministers in Prague which will address the question of launching the Excessive Deficit Procedure.

Preparing for the Spring European Council, to be held on 19-20 March, the Ministers adopted the regular Ecofin contribution to this summit – the Key Issues Paper (KIP) on economic and financial affairs for 2009. This year’s KIP focuses above all on financial markets and support for the real economy. As regards the former, the Ecofin Council gives top priority to restoring credit flows, improving the EU regulatory and supervisory framework to prevent future crises, and promoting the EU’s active role in the reform of the global financial architecture. The Ministers also welcomed the report, submitted at the end of February by the reflection group led by Jacques de Larosière, as an important contribution to the debate on the reform of the EU supervisory framework. The recommendations contained in this report will be discussed in more detail at the informal Ecofin meeting in early April in Prague.

As regards the real economy, the Council’s KIP concluded that the Member States had fully responded to the European Economic Recovery Plan. The Ministers reiterated that steps taken at national level must not result in the loss of advantages which the EU internal market brings to European citizens. They also stressed the role of the Stability and Growth Pact in maintaining sustainable public finances and the importance of pursuing structural reforms in line with the Lisbon Strategy.

The Council also adopted a report for the Spring European Council that contains integrated country-specific recommendations to Member States regarding their economic and employment policies. The report assesses the progress of the Lisbon Strategy structural reforms within the context of the European Economic Recovery Plan.

The Ecofin Council also dealt with the task set for the Finance Ministers by the December European Council, i.e. to decide on applying reduced VAT rates in certain sectors by March 2009. The ministers reached agreement on a short list that included, above all, labour-intensive local services, where all Member States should be allowed to permanently apply the reduced VAT rate. These services include small repair services of bicycles, shoes, leatherware, textile furnishings and clothes, window cleaning and household cleaning, hair salons and the provision of home nursing services. The reduced rate could also apply in restaurants. In housing, Member States could opt for the reduced VAT tax on renovation and repair of private dwellings. In addition, the agreement allows for the application of the reduced VAT rate to all types of books, i.e., books delivered on all types of media, and further allows Portugal to apply the reduced rate to the toll collected on Lisbon bridges and Cyprus to apply the reduced rate to bottled gas supplies. The agreement also stipulates that the reduced VAT rate will not apply to the other items contained in the Commission’s proposal presented last July. Moreover, the Council called upon the Commission to present a proposal that will allow Malta to continue applying its zero-tax rate to foodstuffs and pharmaceuticals. The Council also expressed its support for the extension of the United Kingdom’s derogation for the application of the reverse-charge mechanism. Last but not least, the Ecofin Council agreed that before applying reduced rates the Member States should consider using alternative instruments to achieve their environmental goals, as reduced VAT rates may have limited effect.

The Ministers agreed on EU common messages for the meeting of G-20 Finance Ministers, which will take place on 14 March in London. In these messages, they set the EU priorities in the area of international coordination of macroeconomic policies, global financial market regulation based on transparency and accountability, better cooperation between financial authorities at international level and the strengthening of the International Monetary Fund. At the same time, these common messages form the Ecofin Council’s contribution to the EU’s position for the G-20 summit of 2 April, to be established during the March meeting of Heads of State or Government in Brussels.

The Ecofin Council adopted conclusions on the international financing of climate change measures. The EU is prepared to strengthen the financial flows in this area and render them more transparent as well as to promote fair division of the burden that results from the combat of climate change. The conclusions adopted by the Ecofin Council will contribute to the future common EU position at the UN conference on climate change in Copenhagen in December. Further funding-related steps will be addressed at the upcoming March meeting of the European Council.

Apart from the preparation of the spring summit, the Ecofin Council adopted conclusions setting its priorities for the EU's general budget for 2010.

The Ministers held a breakfast meeting to discuss the current economic and financial situation. The President of the Ecofin Council informed his colleagues on the conclusions of the informal EU summit which took place on 1 March in Brussels and which, among other issues, emphasised the importance of EU’s macrofinancial stability and underscored the importance of individual approach to Member States that start experiencing difficulties. The Finance Ministers have also assumed the common responsibility for maintaining the EU’s macrofinancial stability. The EU has a wide range of tools for supporting its Member States that are currently being applied and will continue to be applied. The situation will continue to be carefully monitored.

At the meeting the Ministers also signed the Convention on Centralised Customs Clearance, which will significantly help reduce the administrative burden on entrepreneurs and simplify trade. This convention simplifies the customs formalities for entrepreneurs, for instance by allowing them to file customs declarations at one customs office and declare the goods themselves at any other EU customs office within the whole of the European Union.

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