Subcommittee on Tax Matters Ordinary meeting EU Tax Symposium 2026
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FISC European Parliament
Follow its sittingsSpeaker 5
Welcome back. Thank you, everybody. Thank you for being here. It is well, I have to say, I'm moved today. I'm really between embarrassed and moved.
And I've been a student, and as a professor of economics, I've been studying and reading books and papers of Joseph Stiglitz and Philippe Aglion for all my life, basically, for all my careers. I was speaking before with Philip about his contribution as well to my understanding of economic growth, frequenting and attending the Schumpeterian Conference for many years, where he has been a prominent scholar. And the work of Stiglitz, well, I was inspired from one of my best books ever I read in my life, is Globalization and Its Discontent in 1998. So they really contributed to my development as a student before, and as a researcher later, and as policy making today. So I'm really moved by this privilege I have, this honor that I have as chair of the committee on tax matter.
And I have to say thank you to all my colleagues, to the FISC committee, to all the coordinators in particular, who shaped the structure of these two days of tax symposium together with the commission, together with Grasmus Thomas, who is as well here with us. Let's move to the content of our discussion with these two distinguished speakers. Before, I have to say just three things about both of them. I am not reading or telling you the bio or what they have done, because it will be too long. Probably our session, which is more than one hour, will not be enough to say what both of them have done.
I will say just three things about both of them. Of course, they got the Nobel Prize. Joseph Stiglitz got the Nobel Prize in 2001, in particular for the work he has done on the economics of information, information asymmetries. He teaches today at Columbia University in New York, after many other universities he has taught. And the third, last of the three things I picked, I chose one of his books, one of his contributions, among the many, which I think, from my perspective, from my personal perspective at least, it synthesized better for me what work has been done, what his work has been.
And the work is of a contribution, together with Amartya Sen and Jean Paul Fitoussi in 2009, ensuring economic performance and social progress. It was a report for the French government and inspired so many scholars, so many institutions, so many work, so many NGOs, so many governments in shaping policy beyond GDP. Because we know that GDP is not the best measure, but only that we have which synthesizes income and wealth in each country. So you know all the other books that Stiglitz wrote, and you may read them. But for me, I think that if I were to pick up one, I would say that.
Philippe Aguilion, similarly, has done so many things in so many universities. So let me just say, again, three things about him. He teaches at the Collège de France today. He got the Nobel Prize, the last Nobel Prize, a few months ago, in 2025, in particular because of his work on innovation. The contribution that Philippe gave to the economic science on better understanding the combination between innovation and growth, and the way to reach innovation, has been fundamental for the economic science.
The third thing that I pick up is a book. And as well in this case, it was very difficult, the choice, but I chose the book that had the most influence on me. So it's, again, a personal choice. And I have to quote the book, which is titled Endogenous Growth Theory, MIT, 1998. So you may read yourself on his bio all the books and writings that he has done.
Now I would like to pass the microphone to them, asking them some questions, and starting with Joseph Stiglitz. I would like to first make a general consideration because we cannot be apart from what is happening in the world. So before starting to speak specifically about tax, I would like, Joseph, to ask you some consideration on the current economic context, which is a consequence of the swell of the geopolitical turmoil which is happening. Europe faced the economic fallout of the energy shock now intensified by the Middle East tension, including the US Iran frictions. In this context, energy systems are being reshaped. Are current tax systems equipped to respond to the energy crisis and protect households?
Or do we need more structural tools, like permanent windfall taxes, or stronger fiscal coordination? More broadly, how would you think that taxation should support the economy in navigating these geopolitical shocks? Do you think that taxing extra profit, for instance, of periods which are making a huge profit today with energy is a good idea? Please, the floor is yours.
Speaker 6
So let me put this in a broader context. The world today faces a climate crisis. I think we all know about that. It also faces an inequality crisis, and there is a democratic crisis. There is a vulnerability of democracy, of democratic backsliding that I think many of us did not expect in our lifetime, and it's all happened very rapidly.
All of you know enough about the climate crisis. It's been long standing, but when Europe faced the crisis when Russia invaded Ukraine, rather than having massive spending on renewables, they focused on building LNG ports, making them vulnerable to another shock. I always joked that sun and wind are not perfectly reliable, but they are more reliable than Putin, and they are more reliable than Donald Trump. So I think it's much more. So they should have put their energy into creating renewable energy. Taxes would have made a very big difference, a carbon tax, not at the low level that you have in Europe.
I mean, I can't, I shouldn't be criticizing because US has zero. But at a carbon price that reflects the real cost of carbon, which is in excess of €100 a ton. So that's where tax helps to shape the economy and gives a double dividend, because you get revenue at the same time that you are making the economy more efficient, more resilient. The second crisis that we face is an inequality crisis. And I was asked recently by President Ramaphosa, when he chaired the G20, to chair a committee that would look at inequality, make an assess what was going on, make recommendations.
The report had an enormous amount of resonance because it brought home what all of us knew, which is that there has been an enormous increase of inequality. And especially this relates to the democratic erosion, especially of inequality at the top. And when you have concentrations of market power, concentrations of money at the top, that is going to translate into democratic erosion. Nothing can say that better than that picture on the inauguration day of Donald Trump surrounded by the billionaires. That is, you know, we, for years, criticized Russia for its oligarchs.
And everybody now saw that America was an oligarchy and, hopefully, temporary. And it was clearly money dictating economic dictating every aspect of our policy and contributing to the erosion. The reason you know, our report brought out some facts, but I let me just mention a couple of them that highlight the context in which we're talking. Since the beginning of the century, the last twenty five years, more than 40% of all the wealth increase over a quarter century has gone to the top 1%. And the bottom 50% has got 1% of the increase in wealth.
And that translates into numbers that are, again, mind-boggling. The top 1% saw their wealth increase by $1,300,000. The bottom 50% saw their wealth increase by a little over $500. So that's the spread that is increasing, and that's why good taxation has to attack the growing inequality. That's why many of us support some form of wealth tax on the super rich.
Then it's been a big battle in Europe. There was it was brought up in the G20 under Brazil. I talked to the National Assembly in France. I tried to persuade them to do it. I failed.
I'm still hopeful that something will happen. But right now, there's a real moment of opportunity because Denmark has proposed a really modest wealth tax on the super rich of 0.5%. And, you know, there are a lot of people who say, be an economic disaster, you know, people yeah. It's absurd. Does anybody think that if you tax Bill Gates by 0.5%, he will stop working or Jeff Bezos, or even that they would be less exploitive of their workers?
No. They're gonna go on doing exactly what they're doing, exercising market power, innovating in some areas, and exploiting in many other areas. So the reality is that the kind of proposal that Denmark has put forward of a modest wealth tax is really important for economic fairness. Here's the reality. The top in most countries around the world, including the United States, pay a smaller percentage of their income in taxes than those down below.
In fact, some of the very wealthiest people have complained about this and said it's unfair. Warren Buffett said, why should I be paying a lower tax than my secretary? He said it just isn't right. And when he did that, he wasn't even thinking about his unrealized capital gains. If he put his unrealized capital gains into his income, the amount of taxes he was paying was minuscule.
And then the final comment I wanna make is this is about fairness. It's about democracy, but it's also about economic growth. Because if you have societies that are too divided, you lack that kind of trust, social solidarity, and you lack the resources that you need for economic growth. Innovation, basic research is a public good, a kind of work that Philippe has talked about and deservedly got the Nobel Prize for. You need public research.
You need private research, but you also need public research. And research doesn't come free. Just as one example I always mention, it seems long history, but just a few years ago, we had the pandemic. We got out of the pandemic because of the vaccine. The mRNA vaccine was based on the mRNA platform that was ready there when COVID-19 hit.
It required resources to develop that. They were public resources. It required resources to convert that knowledge into a specific COVID-19 vaccine. 90% or more was public money. Now, today, where is the money?
It's at the top. So if you're going to have a fair and efficient tax system, you really have to do a more progressive tax than we have had in the past. Right now, as I say, we have a regressive tax system. We need to correct that, but we actually all have to have a progressive tax system. What Denmark is doing of trying to have a wealth tax on the wealthiest seems to me an example of a country moving in the right direction.
Speaker 5
Thank you. Philippe. Thank you, Joseph. Now, Philippe, I leave as well to you some consideration for the international situation, for what is happening, for which consequences may have as well on economic systems. And, in particular, if we can do something to cope with the situation for family, for worker, for cities, for firms facing high energy costs and so on.
But beside that, in order to give you more time to explain and to make your consideration, I would like to focus with you on a specific question concerning transformation of the economy and digitalization. Digitalization and artificial intelligence are transforming productivity in the labor markets. Do you believe our tax system should adapt this transformation, for example, through a new form of taxation on digital activity, capital, or even automate automation? Or would such a measure risk slowing down innovation? In your books, in your readings, often you advocate for competition as an important factor, driver of innovation, and warn at the same time that monopolistic position may reduce innovation.
So how can you explain the fact, for instance, that we do have giants in economy today, which actually, in fact, are very innovative, but then we believe, or at least theoretically, we may believe that this monopolistic company, yeah. Can curb innovation. Thank you.
Speaker 8
So thanks so much. So first, I want to say it's a great honor for me to be with you and with Joe. I learned so much from Joe all my years. I mean, I was shaped by Joe's work and be it, you know, market breakdown, efficiency, wage, land owning, credit rationing, how to measure welfare. I mean, my whole research agenda has been so much shaped by Joel's research and work.
So it's a fantastic honor for me to be with you. On the question you asked, I mean, I would like to be a bit in the European context a bit. We are the European Parliament. We have a problem with Europe and the US and China, and I would like to start by that. Between 1945 and 1985, Europe was catching up with the US.
Speaker 9
If you look at per capita GDP or other measures of innovation or whatever, we were somehow catching up. We rebuild our capital stock. We were catching up because we had a good education system. We could catch up with the technological revolution that took place in the US in the 1930s. And we got up to the late late eighties.
Speaker 8
And since the 1980s, Europe is declining vis-à-vis the US and vis-à-vis China. If you look at the most innovative companies in Europe, the five most innovative companies in Europe nowadays, they are the same as twenty-five years ago. If you look in the US, they are not the same. And you had the IT revolution that we did not harness sufficiently in Europe. US moved to, you know, high-tech breakthrough innovation.
Speaker 10
China is also going there. And we joined. We advocated a lot. I know that we want to become, like, a Chinese government, but there were a lot of virtues of the economic model. And Europe, we got stuck in mid-tech incremental innovation.
Speaker 12
We have a big problem. We do some innovation, but not enough. And we need to become, again, innovative. Because if we don't become innovative, Europe will decline. And Europe, you are mentioning a number of values, Joe, which are very important.
Speaker 11
Europe, you see, for example, the social model. We have a better social model, I believe, than in the US. It's not quite perfect. We can improve it a lot. But we have some kind of, we aim at the social model.
Speaker 8
Democracy and freedom, you mentioned. I think nowadays, we have more than in the US, I think. I don't know what will be the outcome of the election in France in one year, but I hope and pray that we won't get a French Trump in power the next year. Okay? So, for the moment, we have more democracy and freedom.
Speaker 10
Climate, you know, commitment to climate, winds, and things. Trump mocks wind energy. We don't in Europe. So the values that you mentioned, we, you know, we incarnate those values. But if Europe declines, the values will decline.
Speaker 9
So if we want to push what we are, we need to recover. We need to wake up. So the whole issue is how can Europe become more innovative without renouncing its social model? So the big challenge we face is to become more innovative and more inclusive. So we need to find policies that will make us more innovative, and that's the challenge that we face.
Some people believe that to become more innovative, you should renounce the social model. You should give up on the social. And I believe that that's not true. We can be more innovative and more inclusive. You are talking about Denmark.
When they introduced FlexSecurity in Denmark, they became more innovative because they could harness creative destruction better, but they also became more productive and inclusive. When you have a good education system, we suffer from what we call lost Marie Curie or lost Einsteins, many smart kids born to poor families that do not give them the knowledge and aspirations. If you improve the education system, you will reduce the number of lost Einsteins. You will become more innovative and more inclusive. If you have a good competition, you mentioned taxation.
That's very important, Joy. But as important as taxation, now your work shows it is competition policy. A cousin of taxation is competition. I believe in progressive taxation and that we should do something about the fact that there is a huge concentration away. But as equally important is the fact that you have a lack of competition.
What happened with the IT revolution in the US? Initially, you had some firms that pushed the IT revolution, Walmart, Microsoft, Google, and they grew and event, but they grew so large, those firms, that they eventually inhibited entry of new innovators. So the ball, the whole thing is to, and that will not get to your question. I want a good innovator. If Joel is a good innovator, Joel wants to get resources to grow.
I should not prevent you from growing, but I want to make sure. So I should give you the financial ecosystem or whatever the incentives to grow. But what I want to make sure is once you've grown, you will not prevent newcomers, new talents to come in and innovate. And that's the whole difficulty. You need to push good people to grow and expand, but at the same time, it should not be that once they expanded, they will use their rents to prevent newcomers.
And that's where both in the design of tax policy, but in the design of competition policy, we need to design a set of policies that can solve this problem. And the challenge for Europe is to really, you see, firms, there are many start ups in Europe, but they don't grow in Europe. They go to China or the US to grow. They should be able to grow in Europe. So we need to create an ecosystem so that they can grow in Europe.
At the same time, we don't want to renounce our social model because we want more educated young kids, smart, give them the opportunities they don't have, and that's the challenge that we face. You see? But I think if we manage to do that, Europe will achieve something that nobody else worldwide has achieved. That's what I wanted to. Yeah.
Speaker 5
Thank you, Filip, as well, for your passion. And you gave us actually a very interesting perspective on the way we could cope with tech giants in order for them not to prevent the entering of other firms to make innovation. Yeah. Thank you. I would like to move now with you, Joe, to another issue, the fragmentation of taxation.
We do have this issue both at European level, but as well at the international level. Both of you have worked extensively on international taxation. In Europe, from the system undermining its single market, and, how does this compare to a federal state like The US, where varying state taxes coexist within a national framework, with citizens increasingly feeling that a larger corporation and very wealthy individuals can avoid taxation more easily than ordinary workers. What reform would most effectively restore trust in a fair and enforceable system? You are aware as well of the discussion that we have done at OSDD level and as well at United Nations level concerning pillar one and pillar two.
For pillar two, we have reached in the past an agreement on the global minimum tax. On pillar one, meaning on the digital service tax, we didn't so far. How would you, what do you think about that? How do you assess this? And what should be done again?
Thank you.
Speaker 6
Great question. There are many aspects of globalization. You mentioned my earlier book on it. One of the not so good aspects of globalization was that it opened up enormous new opportunities for tax avoidance, and in some cases, tax evasion. And our corporations seized these opportunities.
And, this is an issue again, like some of the things I talked about a minute ago, both of fairness and efficiency. You know, economists talk about the benefits of international trade, but the benefits of international trade arise when the basis of international trade is comparative advantage, real comparative advantage. But that's not what’s driving trade today. A very large fraction of trade today is driven by tax avoidance. So the one industry that is sort of the poster child of this is pharmaceuticals.
Their decision to where to locate both where to produce and where to pretend their profits originate. It's all based on tax. You were talking about the innovativeness of the high-tech companies, but the high-tech companies have been even more innovative in tax avoidance. That is really what they excel in. Apple and Google, the percentage of their income that they were paying in taxes is 0.2% or something like that.
They claimed here in Europe that all their profits they were making in Europe arose from the activities of about 350 people in Ireland. And then they said they don't have to pay Irish taxes because the Irish subsidiary was controlled from Silicon Valley. So it was a beautiful tax-avoiding scheme, but it meant that everybody buying an iPhone or Android in Europe was subsidizing our tech oligarchs and giving them money, and they were not even contributing to education in Europe, research in Europe, or in America. Now that is where the unfairness and the oh, let me say, I it also means that the trade patterns are not contributing to global growth and that, in fact, it creates a fundamental distortion between small businesses that cannot take advantage of these tax avoidance and the multinationals that can. And that means smaller firms who sometimes are very productive and can eventually grow to bigger firms aren't given a fair chance.
So this is an issue of both fairness and efficiency. Now that's where the OECD initiative came in. But the OECD initiative, in spite of the fact that it was called inclusive, was exclusive. It was really run by the advanced countries and the richest of the advanced countries, the United States. And it, as you mentioned, had two pillars.
The second pillar was the, in some sense, the most important, was trying to establish a global minimum tax that everybody, you know, had to pay at least a certain number. I co-chair a group called the International Commission for Reform in the International Capital Tax System, ICRC. Terrible name, but the ambition is a good one. And we said it should at least be 25%. Countries in Latin America are levying corporate income taxes of 28% or 30%.
So a minimum tax ought to be at least 25%. What did the OECD do? Officially, 15%, but then they had carve-outs that meant it was 12 or 13%. And so many of us worried that it would be setting a lower bound. People would be pushing that rather an initiative that was supposed to increase tax would go with the opposite.
But what happened then? Trump arrived on the scene, and just like Europe capitulated on the trade agreement on trade, Europe capitulated on the minimum tax. And so they had this new arrangement where Europe and The United States have their own systems. They call it a minimum tax for both, but they're not. And, basically, American corporations are advantaged over European corporations.
You know, there is no principle on which you can defend Europe's capitulation other than power and the Ukraine war. And we should recognize that Europe has given up in trade and in this area, it's European sovereignty. And part of the reason it's given up that sovereignty has to do with what Philippe was talking about. You are reliant on American technology, and you use Starlinks. You use and so you need to have your technology capacity.
You need industrial policies to bring those capacities. You also need defense capacities. Pillar one was concerned with the allocation of tax rights. And it was supposed to be on the idea that taxation rights should be related to where the economic activity actually occurred. So if you manufactured something in a particular country, they should have the right to the value added of the manufacturing that occurred in that country.
But what pillar one did was address the issue only in the largest firms, and then they made up some concepts that had no economic basis, called excess profits. You know? And by the time they finished all that, essentially, it made almost no difference. And particularly, the developing countries where I would say where production was occurring got essentially nothing, but they had to give up. They had to give up the right to digital taxation.
So they had to give up something that is going to be more and more important in the future, the taxation of digital trade. So and probably had to give up a lot of cross border service taxation as well. So if you looked at it over the long term, what developing countries were asked to do was make themselves worse off. So a system that was supposed to make the global tax system fairer was actually making it worse. So you might say the good news is that after the United States watered down these pillar one and pillar two, United States said, we're not gonna sign.
And so we are now in a new regime. The African Union went to the UN, which is the appropriate place for discussing multinational agreements, and said, let's have an international convention on trade and taxation. And the good news is the United States is not participating. So what I say is good news because it means that there can be actually meaningful discussions, and those discussions are going on now. And hopefully in the future, US will have a government that reflects a better attitude towards social justice and will sign on to whatever agreements that are made in this UN tax convention.
So I think it's a moment of hope. You know, Trump has been totally destructive to the international rule of law in every area, trade, taxation, war. I think in many of these areas, Europe has to recognize there has to be a coalition of the rest of the world, right, sometimes called the G minus one. That is the only way forward. And then, hopefully, US democracy will survive, and we will get a government that will be able to join the rest of the world.
Speaker 5
Thank you. Thank you, Joseph. Philippe, I know that you want to react by adding something to this similar issue. So feel free to do this next question. But let me first introduce the topic concerning artificial intelligence and the possibility to tax or not to tax artificial intelligence.
You before shared with me some idea, which I found very interesting. I would like you to share it with everybody. Some argue that automation and artificial intelligence shift income from labour to capital. Should the tax system compensate for the shift, for instance, through taxation of automated capital or digital rents? Or are there better tools to maintain a fair distribution of income?
I remember in the past, somebody was arguing, probably with some provocation, to tax robots. I know if this was a provocation or was something that is today a necessity. Anyway, I'm really looking forward to your reaction. Thank you.
Speaker 8
I would like first to emphasize the fact that if we want this European recovery that I was mentioning before, Europe has to amend its economic doctrine. For example, the Maastricht Treaty. We used to say, you know, deficit should not be more than 3% of GDP, putting all kinds of spending in the same basket. I would not put growth-enhancing spending, research, innovation in the same basket as pensions and other types of spending. So I would amend the way of using mastery’s treaty.
Speaker 9
Long term research finance or government would not be in the same basket. Because they are growth-enhancing. They improve your ability to repay your debt in the long run. Number two, in the name of competition policy in Europe, we precluded an industrial policy. The US, you do industrial policy.
You have the DARPA, and you have the IRA. You know, less so nowadays, but you have industrial policy and some kind of competition. Not enough, but you do. China also reconciled competition policy and industrial policy. And in Europe, in the name of competition policy, we precluded industrial policy.
Speaker 10
We need to change that. And we are a regulatory giant and a budgetary dwarf in Europe. Okay? We need to change that. We need to allow for euro bonds or the equivalent to finance, you know, our industrial projects.
Speaker 9
I think that's really something we need in Europe to rethink our economic doctrine. I don't know. You mentioned AI. AI, there is a lot of hope in AI. Why?
AI has growth potential. Why is it that AI has growth potential? Because AI helps automate tasks not only in the production of goods and services, but in the production of ideas. It's easier to have new ideas with AI. It's a fantastic research tool.
You can recombine old ideas into new ideas much more easily with AI than you used to. There is enormous growth potential with AI. I know I had some people disagreed with me, but we believe that you could get at least an extra percentage point of growth per year during ten year period with AI. It has that potential. Lack of competition is a problem.
If a few firms monopolize everything, then the growth potential of AI will be inhibited. So I am optimistic about the technology. I am less optimistic about the institutions. It's incumbent on us to reform our competition policy to harness the growth potential of AI. And I don't, and the answer to your question, I don't want AI to be monopolized by a few that will end up concentrating all the wealth and preventing newcomers.
And their tax policy is important. You have to think a lot of tech, and I will go back to the tax policy, and you need competition policy. On employment, AI has the potential to create new jobs. Why? Because when you adopt AI, you become more productive, more competitive, and therefore, the world demand for your product increases.
And that's a channel by which you can increase employment. I also told you that AI will produce many new ideas. That will mean new jobs, but it will also destroy jobs. So with AI, more than ever, you need the kind of flex security system that they have in Denmark, because you will need to smooth out the transition from old jobs to new jobs. In Denmark, when you lose your job, for two years, you get 90% of your salary up to a certain level.
The state retrains you and helps you find a new job. More than ever, with AI, you will need this kind of system. So if we put the right institutions in place, good flex security, good education, good competition policy, we will harness the growth and employment creation potential of AI. And then AI can give us a lot. But there is this issue of taxing the tax. It's true that if there is an excessive concentration of wealth, you need to do something about it.
But the difficulty there, Joe, is the following. And that's why I have my small argument with Gabriel, whom I like very much, Gabriel Zucman. If you are a start up like Mistral in France, for example, you are valued at €12,000,000,000, but you have not earned the percent of that billion euros. Okay? If I put right away a tax of the €12,000,000,000, you will need to borrow or to bring the state as a shareholder to just pay the tax on the €12,000,000,000, rather than expand.
So I would like those who have accumulated wealth to pay for that. Okay? I would also want people to restrict the possibility to use nonrealized wealth and make realized wealth appear like don't realize wealth. I agree with that. But beware, be sure that what you do will not discourage the new startups like this trial, like Jan Luka.
You know, great news we had in Davos, we didn't only have bad news. The one good one of the good news is that Jan Leuka left Mistral to come back to France and England to start the next revolution within the AI revolution. Do I want to stop Jan Luka by saying, you know, if you are valued at €10,000,000,000, you should borrow and just pay the tax on the 12. No. I want to help this flower bloom.
You know? I want to help Luka make that revolution in Europe. Imagine if this revolution, the post LLM, yeah. He wants to develop the post-LLM rules. I want this to happen in Europe.
I will not do anything that could prevent Leuca or Mr. Lotte to do or the equivalent in other European countries from doing that. So the difficulty of the exercise is to make sure that those who have a lot of wealth contribute. But without discouraging those who try in Europe, you know, we barely try in Europe to make to do something. I would, you know, I love cheese.
In France, we love cheese. I mean, it's great. But I don't want France to produce only cheese. I want France to also produce AI. I mean, we have good mathematicians, good scientists.
So I want to make sure that they can find an environment where they can blossom. And that's the difficulty of the exercise. That's why it's not totally trivial. And I share your concerns, Joe.
Speaker 6
Yeah. That is a legitimate concern, but we've actually designed several different ways in which, for instance, you only have to pay the tax when you realize the capital gains. So there are ways that this is a problem that can be solved. And just for those of you who haven't followed the details, there are some differences in the different forms. I happen to be a fan of the proposal that Zukman has proposed in France, which is a minimum tax, which says that those with wealth should pay at least 2% of their wealth, including the income that they get from that wealth.
And they can defer. But
Speaker 9
said I have huge debates with him. Mean, he really wants the unrealized one. I have a huge discussion with Gabriel. Anyway, I debated with him.
So that part, I think, I
Speaker 5
Charlie, one question was about what do you think about Zukman Sachs. I had read here. Well, there. So the
Speaker 6
There are different versions of that. But there is one aspect of AI that I do want to emphasize, which is that, and it's related to taxes. AI, like social media, is incorporating knowledge that is produced by others without paying. If I wanted to be crude about it, I'd say they're stealing intellectual property massively. And we know the consequences of that.
It will mean in certain key areas incentives to produce relevant information in a timely way by, say, legacy media will be innovated. And that means a technology that has the ability to process and disseminate information better will lead to an information ecosystem that is worse, and will undermine economic efficiency. So there are several ways of dealing with this. One way that I think really is probably the simplest, and it follows a model that's been used in some places, is attacks on AI used part of which is used to create a robust media landscape and a competitive and diverse media landscape. And that's really related to one of the three crises that I talked about before, the democratic crisis.
And if we don't have a robust media landscape, we won't have a robust democracy.
Speaker 5
Thank you. Thank you, Joe. So as I said, one of the questions was exactly about the discussion that we had in Europe, that's why in the parliament, that's why in the committee on ultra high net worth individuals. And the typical argument, well, of course, the parliament here is very divided. They are concerned proponent, of course, they claim and they think that inequality has been polarizing too much society, and there is a risk as well on democracy, a threat on democracy.
And therefore, a Zukman tax, which would apply only to top up, meaning for the part of tax which is not already paid by individuals in order to reach a 2% or a 3%. And this will generate an income flow in Europe of €121,000,000,000, which, as you know, for the new priority of Europe, this would be fundamental for the green transition, for the digital transition, for defense priority, and so on and so forth.
On the return of the reuzuikman tax.
Speaker 5
Yeah, I would like to ask you about that and about the possibility of flight capital, whether this is an argument or not. What do you think about that? Philippe, for you.
Speaker 8
I don't want to steal your to be very unequal than distribution of microphones. I don't want to contribute. First, I would like to say something about inequality in general. One big problem that we face in France, for example, is that social mobility has gone down. I mean, there are various measures of inequality.
Speaker 9
I worry a lot about inequality at the top, but we have other measures of inequality. The Gini, for example, is how far globally you are from perfect equality. That's another measure of inequality. Another measure is dynamic inequality, the extent to which your income is correlated with your parents' income. I think we need to look at inequality globally.
My concern, I will tell you something. My obsession is the poverty, is the poor. You know, there is a well-known, I don't know if that story ever took place. It's Otelo de Carvalho visiting Olaf Palme. I don't know if this ever took place.
And Olaf Palme asked Othello de Carvalho, how is Portugal doing? Very good. We have fewer rich people. How is Sweden doing? And Olaf Palme would have said, great.
We have fewer poor people. Well, my own obsession is poverty. To be honest with you, I can't stand poverty. I mean, poverty traps. Those who are in poverty trap cannot grow, have no prospects, you know, because they come from poor background.
That's my main obsession. My main obsession is social mobility and poverty. That's the main thing. And a big concern that we have now in France and maybe in other countries is that social mobility has gone down. The school system is not playing the role of a social ladder that it used to play.
For me, this is as important, at least, as the issues we were discussing. I mean, I think the taxation of risk is very important, but in France, it has become a totem. And then you ignore all other aspects of social mobility and inequality, in particular, in school. How can I improve the school system to improve social mobility? How can I provide opportunities for employment that, you know, people would grow and would have their children happier than they are?
I mean, those are as important. I don't say less important, more important, but they're all as important. And my feeling is not only inequality and growth. Some people are focusing entirely on the top income, which is an issue because if top can prevent entry and can damage you, and I agree with you on that. But we need to have a global vision of inequality, and it's very important that we look at the channels that can foster social mobility and growth: education, competition, flex security.
Those are things that stimulate social mobility and innovation-based growth. Those are as important issues as the top income. I don't want to downplay the top income, but I think we should not just concentrate on that at the expense. See, in France, for example, you have some people, they only talk about that, and nothing is said about the schooling system. And I think this is, I would like just to point that out because you need to have a global view on inequality.
There is not only one measure of inequality. There are several. All of them need to be dealt with, and when in relation to prosperity. I think that's something we should and that should be gone because I think at the end of the day, we want to reduce poverty. What do we want for growth and prosperity?
To reduce poverty. If you look worldwide, you mentioned an increasing inequality. It's true that in our countries, inequality went up a lot. But globally, it's not clear that they went up that much. There is what we call the elephant curve that Milanovic and others have pointed out.
And thanks to the fact that China and India and other countries grew fast, that has contributed enormously to the reduction of global inequality and to the reduction of global poverty. Those guys should also be brought into the picture. I don't say at the expense of the other things, but I think they should also be brought into the picture.
Speaker 5
Thank you. Yeah. Joseph, this is then we will give the floor to the public. It's your last reaction
Speaker 6
To this decision. I agree with Philippe. There are many dimensions of inequality in the United States. We're also very aware of inequalities of health, that life expectancy is going down, disparities between the health of the rich and the poor are going up. That's because we don't have the European social model.
We don't recognize the access to health care as a basic human right. But if we're going to provide education that is going to be important for social mobility, if we're going to provide the active labor market policies that are going to enable people who are displaced from the jobs to get new jobs, we need public revenue. And in today's world, where is the money? The money is at the top. And remember what I said before, the people at the top are paying a smaller fraction of their income than the people down below.
So what we're talking about here is, at a minimum, not an onerous tax on the top. What we're saying is at least they should be paying a fair share. And that won't give rise, as I said, to migration. It won't give rise to people not being productive to it, it won't innovate entrepreneurship. All those are scaremongering by, obviously, the rich.
If I were rich, I wouldn't want to pay taxes, I suppose. I think my sense of social solidarity would make me feel like I ought to. But I understand people not saying I don't want to pay a tax and using every mechanism, including scaremongering techniques. The evidence is they don't migrate, and they continue to do be just as do whatever it was, whether it's exploitation or innovation, unaffected by these really low taxes that can generate so much revenue because they have so much wealth.
Speaker 9
But I want to add to what you said, Joe. I agree with you. But what I want to make sure for France, for example, if we get AI out of France by I will, you know, that will inhibit growth in France and therefore our ability to finance our social model. I want France and other European countries to become more innovative because it will improve our capacity to finance our social model in the long run. And that's why they're saying, I agree with you, but I don't want to do anything that would discourage Jean Lucat. Yeah.
But he's modest for staying to do that. France that I could use to finance the social model of France.
Speaker 5
Thank you. Thank you. We really, I think, chosen the good argument. You see how the discussion was lively. You see how the argument was solid and robust.
So thank you to both of you for this inspiring thesis.
We agree. We agree.
Speaker 5
Yeah. And there is one thing. Moreover, I mean, Philip, as everybody knows, is French. And Joseph is American. And in a way, they are crossing each other, meaning that they change the jacket when they speak about Joseph's social model and Philip about innovation.
So probably referring to the fact that he inspires Philip to the innovative firm that in America, actually, they do have. And while Joseph is probably inspired more by the European social model, which creates more equity condition. Anyway, I stop here because I will even these words that I just said would open the debate. So I will give the floor to the national parliament now, to three speakers of the national parliament. I will start with France.
From France senate, the seat number 105, Florence Bladryk's contact. Please, the floor is yours.
Florence Blatrix Contat
Thank you. Thank you very much to the speakers. Mister Tridico explained these ideas from the point of view of endogenous growth, where the state needs to intervene on the basis of human capital to bring about growth with the state financing. Then Mister Stiglitz, obviously, has outlined the needs that we have for the environmental transition and to fight inequality. Our countries do have these resources.
In the senate, we've shown that there are 13,000 millionaires who are not paying any tax. And we've also seen that the 500 largest fortunes in France represent 46% of the GDP when it was 6% just a few decades ago. That's why we need to have the Zuckerman tax. That should be properly studied, rather than just being an option. We here have heard that this would bring about own resources of 121000000000.
They are essential for financing the future. This fear is just a pretext to stop the research and innovation, but that shouldn't stop us moving forward on these subjects. Thank you.
Speaker 5
Thank you. So I will ask, I will collect some questions. The second one will come from Greece, from the Hellenic Parliament. So, Mister Paraskevas Kokolopoulos, member of the Greek parliament, please.
Speaker 16
Thank you, chairman. Climate change, inequalities, democratic crisis, Stiglitz, mister Stiglitz. I am from the Pasok, the socialist party in Greece. You are a friend of ours. I welcome you to Europe.
Speaker 19
I have a critical question referring to Mister Eigelin as well, who spoke about competitiveness. Europe on the energy field, which is a key for innovation and for competitiveness and for Europe's welfare, has taken an option, the carbon tax, which is a just tax because it funds the transition to renewable sources, has been used to lose domestic taxes in Europe and in health. On the contrary, our dependence on the Russian natural gas and now on the American LNG. Is this a reasonable choice or should we have moved and taken move from our own resources to gradually to renewable sources and storage by also supporting innovation, as Mr. Adion said. Thank you.
Speaker 5
Thank you. Thank you. I will take another question now from an academician, from Michel de Wolfe, professor at the University of Catholic de Louvene, so not far from here. Seat 299.
Thank.
Speaker 17
thank you very much. My question is first from Professor Stieglitz. You called for restoring sovereignty to Europe when it comes to taxation compared to the U. S. Do you think it's possible to do that without transferring corporation tax competence to the European Union?
That's my question. Now, when it comes to VAT or wealth taxes, we've got no problem with tax sovereignty when it comes to taxes on physical persons. But when it comes to corporation tax, it's quite clear that our sovereignty is threatened. Corporation tax only accounts for 2.7% of gross GDP in the EU. And after transfers, this kind of income could go into the research funds.
Now my question for you, mister Tridico, is whether the European Parliament shouldn't be working more on major political projects like that. That's to say, European competence for corporate taxes. We already have that for customs. Wouldn't that be better than simply trying to pick up the pieces of broken crockery in the OECD's pillar one and two regimes?
Speaker 5
I will take the last question, and then I will give the floor to you. This time, from outside of the European Union member states, is Norway, the seat number 286, member of parliament, mister Nikol Astrup.
Speaker 18
Thank you for a very interesting conversation and debate. I am from Norway. We have a wealth tax, and it's about 1%. It has increased substantially in the last few years. And the result is that we have lost many hundreds of our richest people, industrialists, who have fled abroad.
And also, more worryingly, a lot of young entrepreneurs who are not rich, but who move, because they fear that they one day might become rich. And in the process of building a company, which might be worth a lot on paper today, but will only yield income many years into the future, they fear that they have to sell their company or migrate to Silicon Valley in order to realize their dreams. So, do you, Professor Siglis, see this as a challenge? That introducing a wealth tax in Europe will lead to more young entrepreneurs moving to the US to build and scale their companies from there? Thank you.
Speaker 5
Thank you. Joseph, I will start with you, and then I will move to Philip, and then I will conclude. Please.
Speaker 6
Okay. So first, let me turn to the issue of climate and whether Europe's response to the energy crisis after the Russian invasion of Ukraine was the right one. And I feel very strongly they should have taken advantage of Europe's resources, the sun in Greece for solar energy, and other sources, the wind in various places, including in Greece, rather than making themselves dependent on a version of fossil fuel, natural gas, that made them more vulnerable to another crisis like the one that one is going through today. I think it's absolutely, I said this before, the invasion of Iran, but it's made it so transparent that that was a fundamental mistake both in terms of climate, but also in terms of European resilience and national sovereignty. On the issue of European competence in taxation, I agree very strongly that when the EU is formed, there was a lot of discussion of externalities, worried about proficiency on one country having negative effects on the other.
But they didn't think about probably the most important externality, which is at least one of the most important externalities, which is the tax externality that there could be tax competition to try to attract corporations, individuals from one country to another, raising your revenues at the expense of another. It's clearly an externality which should have been very much on their mind. Now Philippe and I have both mentioned the importance of innovation in Europe. And innovation requires industrial policies, requires research. All that costs money.
I remember discussions after The US passed its IRA trying to give The United States a comparative advantage in green technologies. The United States that IRA bill was estimated to cost somewhere between 1 and 1 and a half trillion dollars. And I heard complaints from European commissioners saying we can't compete. And, of course, it was a violation of WTO law. But, you know, with United States wanting to violate it, nobody is going to punish it.
And certainly, as we've seen in the case of Europe's capitulation to Trump, Europe is not going to enforce WTO rules. Well, if Europe is going to compete, it needs revenue. And if it's not going to avoid the problems of state aid, of competition from one country to another, that revenue has to be at the European level. So I think it's absolutely clear that Europe needs to have the competence to tax corporations, and I also think it has to have the competence to tax wealth because one of the important sources of these externalities is different European countries competing for the wealthy. People move from France to Belgium and Belgium as a place on the way to Monaco because they can't move directly from France to Monaco because of an agreement.
But, you know, these are the wealthiest people in France not wanting to pay their fair share of taxes. That shouldn't be allowed. They make money by taking advantage of the education system, the infrastructure, the legal system, but they don't want to contribute. And that just doesn't make any sense. So I am very strongly in favor of developing, yeah, Europe competency in a number of areas in taxation.
And I don't know enough about all the details, but I think the corporation tax, the wealth tax, are examples where that would be valuable. And I did like the remark about rather than trying to fix a broken OECD initiative, doing something substantial both at the UN and in terms of increasing this tax confidence in Europe. Now on the question of the wealth tax and it having this effect on inducing out migration and innovating innovation, I think, as I said before, I think it's been exaggerated. I don't think it should be ignored. I mean, I agree with Philippe.
It is something that one has to worry about. But the reason that, you know, this is good news for Europe. One of the reasons that US was so successful in innovation is not our tax system. The reason is we had the best universities in the world, and they attracted the most talented people from around the world. Trump has had a concerted attack against science and against our best universities.
So it's a real opportunity for Europe. American science really benefited from World War Two. That it was at that time when people like Einstein migrated from Europe to the United States. And it was at that time, before that, we did not have strong science. The strong science was in Europe.
But Europe shot itself in the foot, and we benefited. And now America is shooting itself in the foot, and Europe really should take this opportunity to benefit from our really big mistake. One of the aspects of, you know, you look around globally, where a lot of innovation is going on, and you think about America as having a lot of innovation, the point that Philippe made is really important to recognize the number of young entrepreneurs in the United States is declining because of the lack of competition. And this is well documented. And you ask, you look at American innovation, it's at a very narrow slice, high-tech.
You ask, where is the innovation going on in areas like nanoscience, EV, and batteries. I've seen a list, know, of like 25 areas. The United States has a couple of them. Important. Where is much of it?
In China. Why isn't it in China? The pay is really low. The ability of the state to take away your wealth is very high, and yet they're having a lot of innovation. What is the basis of it?
A couple of things. One of them is human capital. Engineering. For 45 years, they have invested huge amounts in engineering year after year. So you look at I visited a very innovative auto factory outside of Beijing.
Most of the people, more than 50% of the workers in the auto company, were engineers. The reason they were winning is not because of government subsidies. The reason they were winning is they had more engineers, and they had a supply chain, an ecosystem that was really conducive to innovation. So I think when we think about what makes for innovation, yeah, taxes are important, finance is important, but education and basic research are probably more important.
Speaker 8
I think, you know, I know you know all about the Draggy agenda. You know, Draggy or other reports. You know? What are the things we need in Europe to make? We need a true single market.
We don't have a true single market for goods and services. There is too much gold-plating going on. We don't have a true unified capital market. Long-term research finance. In the US, one good aspect of the US is that failing is not a problem.
Speaker 9
You are not punished if you fail because they used to have long-term research funding. If you are a startup venture capital, if you are a larger firm, institutional investors, so that if you fail, it's not the end of the world. We need more in Europe to be able to fail, because you don't make breakthrough innovation. If you are not allowed to fail long-term research funding, more venture capital, more institutional investment, we need those guys in Europe to become more innovative, and we need the DARPA. We don't have anything like DARPA in Europe, the Defense Advanced Projects Agency, which is this way to reconcile competition policy and industrial policy.
Those are the things that are badly needed. If Europe wants to protect its social model, we badly need to set up those things. And I used to make a joke with the U at an NBER conference last year in the US. I said, in fact, you see, Donald Trump, he read the Draghi report. He felt very bad for the Europeans, and he said, you know, since you are unable to catch up from the bottom, I will do things that will make us reduce the gap at the top.
So I will cut the research funding. I will tell you, know, that the Harvard president is anti Semite. Well, he's a good observant Jew. I will do a number of things that will reduce the gap from above. I think, as you said, we have this fantastic opportunity that we have this soft power, democracy and freedom, social model, commitment to climate.
We have great engineers, great scientists in Europe. Let's harness this soft power, and let's implement those measures that I mentioned. And Europe can be, again, and because we carry these values, it's, I think, a very worthwhile project. Thank you. Thank you.
Speaker 5
Thank you very much. I just own one single question to my colleague from Louvain. I just will say it like that. Well, there is a tension between member states and the European Union concerning tax policies. Tax policy is considered to be, well, it is a national member state policy, while member states are very jealous for that.
Now, I always say that while tax policies and national member states' policy, multinational are not national. So we need, I think, I believe personally that we really believe a European approach concerning, in particular, multinational taxation, concerning, in particular, digital taxation, concerning, in particular, high net worth individuals. And today, we learned a lot. So I really thank you, Philip and Joseph, for their wonderful insight. We understood one thing, which is a common ground, probably.
The European social model is a special one. This needs to be, anyway, defended, meaning that we know what the disadvantages of this model are today. We know what the gaps are today, the lack of flow. We see competitiveness and innovation being strong in the United States. We told the limitation that even Philippe recognized here.
But we know what are the advantages for that, education, health, life expectancy, which is the highest in the world, and so on and so forth, which makes your report that I mentioned before, Joseph, the report beyond GDP, the real progress or measurement of the progress of individuals, very valid still today. So there is something else than GDP, which makes human life better. Thank you to all of you for being here today with us.
Speaker 2
Today, and for this very interesting cherry on the cake that you just heard. It was wonderful, truly. And at the most difficult time in a conference, right after lunch, well, people usually take a nap and the hardest panel to keep them alive and kicking, but they did remarkably well. A photo opportunity. I will not agree or disagree with what has been said.
I wouldn't dare, taking in mind that those are Nobel Prize winners. What I'm taking with me is the fact that Philippe reassured us he loves cheese because at some point in time, I was worried that he's a cheese lover as well. So you reassured all of us we are going to keep the French cheeses. Okay. I also noticed that he was worried about the equality in mics, which is quite remarkable for a Nobel Prize winner, and talking about the quality, even to keep the mic aspect into account.
And I also noticed that they used the words good news, both of them. That was probably the first time today. So, thank you. Thank you for having done so. As far as Joseph's intervention was concerned, I was a little bit concerned as him mentioning Belgium as a stopover to Monaco.
I wouldn't like to encourage all the French to come and live in Belgium for a while before going to Monaco. We already have the Dutch coming to Belgium for their wealth taxation, so please do not add many more French to that. I also learned that Norwegians are afraid of getting rich. That's probably unique in the world. That's a unique selling point that you would have.
And finally, and maybe the main thing for today that we could take away is that we've learned that agreement can be reached across oceans. We've seen that at least the Nobel Prize winners are able to reach agreement on certain topics. So I would like to encourage our Swedish colleagues to hand out many more Nobel prizes for economics so that we could reach agreement faster all over the world. Now, without any further ado, we'll go to the third panel. Bert, to introduce the panel, ladies and gentlemen, please may I have your attention for the following panel.
That would be really kind. After this, you will get a coffee break. So don't worry. There's no coffee yet outside. So remain seated for this very interesting panel, coming right up.
And to introduce that panel, if you want, you could already take your seats. It will be moderated by Matthew Baldwin, head of the housing task force at the European Commission, and three panelists joining him on stage. And to introduce the panel named tax measures to fight the housing crisis, I would like to invite the member of the European Parliament and chair of the special committee on the housing crisis, Missus Irene Natinangli, on the stage for the introductory remarks. Thank you. The floor is yours.
Irene Tinagli
This is probably the most difficult time to talk this afternoon. So I hope to get a little bit of your attention to discuss the next topic, to introduce the next topic, which is indeed something very, very concrete, not abstract, that affects European citizens every single day, which is housing affordability. So across the European Union, housing markets have undergone significant changes over the past decade. In many metropolitan regions, both house prices and rents have grown considerably faster than disposable income. And this debate is particularly relevant in view of the speakers of the next panel.
So indeed, for younger households in particular, access to housing has become more difficult both in the rental market and in home ownership. And at the same time, the functioning of labor markets is also increasingly linked to the housing availability. When housing costs become a binding constraint, workers, and in particular essential workers such as health care staff, teachers, or public service personnel face greater difficulties relocating to cities and regions where employment opportunities are strongest. So in this sense, access to decent housing is not only a social issue, but also an economic issue. It affects talent and workers' allocation and the ability to work and exercise the right to continue working without being priced out of certain areas due to housing pressures.
This is why the housing debate has progressively moved to the centre of the European agenda. The European Parliament, the Commission, and the Council now recognize that housing challenges have implications for social cohesion, labor mobility, and long-term economic performance. Indeed, housing decisions are shaped by a combination of factors. Demand and supply dynamics, regulations, financialization, construction costs, demographic trends, and financial conditions all play a role. Public policy, including taxation, interacts with these factors and influences how housing markets evolve over time.
So next panel will address the role of taxation as a key element for this discussion, because tax systems shape incentives in housing markets and influence how households and investors behave. So therefore, it's useful to look at the broader structure of housing taxation in our economies. Across many European countries, housing represents the largest component of household wealth. Residential property typically accounts for around half of household assets, and for low and middle income households, the share is often even higher. This means that developments in housing markets have a direct impact on wealth accumulation, financial stability, and intergenerational economic outcomes.
At the same time, housing taxation represents a relatively modest share of total tax revenues. Recurring taxes on movable property account on average for roughly 6% of total tax revenues across the OECD. This share has remained broadly stable for decades, even though housing values have increased significantly in many countries. Another important feature is the diversity of tax instruments applied to housing. Different countries rely on different combinations of taxes linked to property acquisition, property ownership, and capital gains.
In some cases, taxes on property transactions represent a substantial source of revenues for regional or local governments, but in others, recurrent property taxation plays a more prominent role, just to give an example. In addition, the administrative evaluation systems used for property taxation vary widely across countries. In several cases, property values used for tax purposes are updated only periodically, which means that the relationship between administrative values and market prices can evolve over time. Moreover, the tax treatment of owner-occupied housing often differs from that of the other types of investments. These provisions reflect long standing policy objectives in many countries, including the promotion of home ownership, and the accumulation of household wealth.
The design and fiscal relevance of such provisions differ a lot across member states. An important dimension to consider is the increasing financialization of the housing market. This is also something we've been observing. In recent years, housing has become more closely linked to financial markets, financial instruments, and institutional investors playing a growing role in ownership, development, and management of residential assets. But at the same time, access to credit and various financial instruments have enabled different actors to allocate resources in ways that can influence both investment patterns and housing availability.
This process is closely intertwined with fiscal policy. Different tax treatments such as deductibility of interest, incentives for rental investments, or preferential capital gains taxation, they shape the decisions of households and investors alike. As a result, the design of the tax system can reinforce inequalities in access to housing, benefiting those with greater financial capacity to accumulate property wealth and exploit fiscal advantages, while potentially constraining the supply of affordable housing for middle income households. Recognizing the institutional and financialized nature of housing markets is therefore crucial for understanding market dynamics, resource allocation, and the broader social and economic implications of public policy. Taken together, these elements illustrate an important point.
Housing taxation is not a single instrument, but a complex architecture of policies that influence household behavior, investment decisions, and housing market dynamics. Understanding this architecture is essential when discussing housing affordability. At the same time, it's important to recognize the institutional framework in which these questions are addressed. Taxations, I mean, even in the previous panel, it's been mentioned many times, remains a national competence, and housing markets also differ a lot across Europe. But nevertheless, the European level can play a constructive role by fostering coordination, coherence, and long term planning.
Instruments such as the European semester, for example, they are designed exactly to ensure consistency between economic, social, and fiscal objectives across member states, providing a framework in which national policies can be aligned with broader European goals. Financial regulation, investment programs, and fiscal frameworks all interact with the housing market in important ways. And ensuring coherence across these areas can create a more stable environment for long-term housing investment. So I'm concluding. You know, we've been working a lot, and I really believe this is a crucial point.
But just a broader reflection, housing is often discussed primarily as a social issue, and rightly so. Access to adequate housing is closely connected to well-being, dignity, quality of life, but housing is also a central component of modern economic systems. It influences how the labor market functions, how cities develop, how wealth is accumulated across generations. And in Europe today, housing costs increasingly shape decisions about where people study, where they work, and where they form their family. If they form a family, sometimes they cannot even afford it because they're afraid they cannot provide for decent housing for the family.
For firms and local economies, the availability of affordable housing has become an important factor as well. It's an important factor in attracting and retaining workers. For governments, housing market has implications for financial stability, urban development, and fiscal sustainability. For all these reasons, housing policy deserves careful and rigorous economic analysis, including its fiscal dimension. Of course, taxation alone will not solve the whole housing challenges that are facing Europe, but understanding how tax systems interact with housing markets can help ensure that public policies support efficient allocation of resources, adequate housing supply, and sustainable economic development.
So thank you very much for this opportunity, and I leave you with a very distinguished panel for a fruitful discussion. Thank you. Thank.
Speaker 2
you. Thank you, missus Dinari, for the passionate way in which you explained to us what you've all been working so hard on lately, and for emphasizing the importance and the complexity of the topic. And I will not take more of your time, because there's plenty to be said on the topic. So the floor is yours, Matthew. Go.
Speaker 1
Very much. Good afternoon, everybody. And thank you very much to doctor Tinyarli for that brilliant set of remarks, which I think frame our session very well this afternoon. My name is Matthew Baldwin. I have the honor to lead the European Commission's first ever task force on housing.
And it's also a great honor to be invited to this incredible forum. I'm told that there are, in fact, three certain things in life. There's death, there's taxes, and there's the European Tax Forum. So it's a delight to finally be here and to see just how much strong interest there is in this forum. Erena has done a wonderful job, actually, and done my job for me in explaining why this issue is now quite suddenly being tackled at the European level.
Europe quite clearly remains in the grip of a massive housing affordability crisis, a crisis, of course, it is not the same in every member state, to be sure. But if we look at the numbers, if we look in particular at the squeeze in big cities, in tourist areas, there is a major demand and supply crunch that is ongoing. And aside from the numbers, I think as doctor Tenjali made very clear, these are real people we are talking about. We are talking about real situations of housing poverty. And as President Ostrovander Lein said, if housing is now an issue for Europeans, it needs to be an issue for Europe.
But before we go on, let me briefly state the obvious. The commission recognizes that the primary, the predominant responsibility for housing lies with member states, with cities, and with regions. It follows that we, at the European level, need to find a way to support you in this work and to add, where we can, that precious European value to your efforts. Where we feel we can help is set out, I think comprehensively, in the first ever European affordable housing plan, which we published in December and which I urge you to have a read of. We recognize that as a result of this competence question, it'll be mainly through working together, not through top-down regulation, not through the wagging finger of the European Commission, but looking together at how we can establish best practices, including in areas like taxation, to improve things.
And when you look at taxation as a tool, we also fully recognize that member states are competent, particularly in the sensitive area of personal taxes. So we will be treading very carefully here this afternoon. Now, nonetheless, if we in the EU, not just we in the commission, we globally, want to address the housing crisis, we do need to look at tax policy, and fiscal incentives have to be a part of this as well. Tax policy, I think, as Eren has explained very well, shapes investment decisions. It shapes land use.
It shapes housing supply and demand. If we're not careful, badly designed policies indeed can help drive speculative behavior, deepen the affordability problems in the housing sector. I think somebody said after the previous panel, it was a very difficult panel after lunch. But, in fact, the hardest panel this afternoon is the panel that followed the two Nobel Prize winners. And so we have to, and we are gonna be lively.
So I have assembled for you a cast of stars to discuss this interesting and dynamic question. And let me briefly introduce you to them. We have with us today, ladies and gentlemen, Esther Lynch, who is general secretary of the European Trade Union Confederation, ETUC to you and me, the culmination of her long and successful career in social dialogue, collective bargaining, wage policy, trade union rights, of course, and gender equality. And happy Saint Patrick's Day to Esther and all our Irish friends in the room. Let's hear it for Saint Patrick's Day.
That was brave coming from a Brit, wasn't it? We also have with us Michalis Hajipantela. Welcome to the USA, a member of this European parliament from the EPP group. He's from Cyprus, and he serves on the ECON and FISS committee. Michaelis has also been Cyprus's minister for health.
He is a chartered accountant, a UK chartered accountant, I'm told. And, amongst other things, he's president of the Anorthosis Famagusta football club, which is very important. And last but not least, we have with us Sina Rizapota, who is a human rights, youth, and climate activist from Switzerland. She's a board member of the European Youth Forum, the largest platform representing young people, and specifically, she follows housing, which makes her a great and relevant choice for this panel. Before we begin, and to wake you up even further, ladies and gentlemen, would you join me in giving the panel a really warm welcome?
Right. This is the first question, and it's the easiest one. So get used to it getting a little bit tougher. The question, and starting with you, Esther, if I may, and I'd ask all of you to address this, is to what extent and where, in your view, can housing taxation improve or impede housing affordability? Esther.
Speaker 21
So whenever I come here, and I'm really happy to be back again, I say to my colleagues, look, I need to bring some facts and some figures. So I'm just gonna start with a couple. And I think one of the most worrying facts that we have is that in 16 member states, if you earn minimum wage, you can't afford a one bedroom flat even with all of your minimum wage. So it's over 100% of your minimum wage. And in some member states, it's as much as 160 or 185%.
So even if you had two jobs, you couldn't afford a one-bedroom flat. So for absolutely certain, this is a major issue. So we very much welcome the work of the commission. Tax is certainly part of the story because what's driving part of the affordability crisis, not just for renting, but in particular for those who want to buy their home, which is an ambition that a lot of working people have, and it can sometimes be a meter stick by which they measure their own success and the value of their wage is whether they can afford to buy their own home. They're competing with hedge funds who have access to much cheaper capital, and who have much more favorable taxation treatment.
So, at the moment, tax systems aren't neutral in this discussion. They're very specifically enabling and encouraging the development of an approach where it's no longer thought of as a home, but it's more and more thought of as an asset. So for sure, tax has a big role in driving that and in creating an unfair market for purchases when it comes to families trying to buy, whether it's a flat or a house. My final then point is there also is a need to look at changing the way in which land hoarding is happening to encourage the use of land rather than to reward the nondevelopment of sites. And then to consider the windfall of value when land is rezoned that can also be a way of bringing in the much needed taxes that we need so that we can build affordable housing and get back to the idea of a home being a human right and something that everybody, particularly in Europe, with our social model, can believe that that's within their grasp no matter what work they do, no matter what sector they're in, or what part of Europe they live in.
Speaker 1
Thank you very much indeed. I really like the clear way you got those points across: housing as a human right, and tax systems are not neutral. Encouraging in your view, the path towards financialization of my home is an asset class rather than my home. Sina, do you agree? I have a microphone.
Go at it.
Speaker 23
Yes. So to make it simple, like anything, housing taxation can produce good outcomes and bad outcomes. Right? It can make housing more expensive. It can make it more speculative.
And as it is actually the case in a number of European cities, it can also make it more affordable. But whether you consider an outcome to be good or bad is, of course, determined by your relationship to housing. One person's housing troubles can be another person's passive income, and the large-scale selling off of public housing stock, for example, can also be a windfall for developers, but a disaster for those looking for an affordable home. And for young people all across the EU, that relationship has become extremely fraught, as housing is now one of the biggest sources of stress and frustration. And at the Youth Forum, we know this because through our membership, we represent over 5,000 youth organizations and 40 million young people, and we hear this all the time.
And it's not really surprising because in many EU cities and towns, rents have outpaced young people's salaries by 3 to 1. And a recent Eurofound paper revealed that a standard two-room apartment to rent now demands 80% of an average young person's income, and access to nonmarket housing is also almost out of the question, with waiting lists upwards of 10 years in many places, and homeownership is also increasingly determined not by a young person's income but by their relationship to wealth, so meaning the bank of mom and dad. At the same time, a third of the EU population lives in under-occupied homes, and 47.5 million homes across Europe remain vacant. So we have a huge problem not only with affordability, but also with how we use and occupy the housing that we already have. So there's no doubt, to get back to your question, that taxation has played an important role in this deterioration, a deterioration that has hit young people extremely hard.
So what does that look like in practical terms? I think there are two important trends to mention here. So over the past 20 years, governments have, for the most part, shifted spending from building social and affordable housing to demand side subsidies, such as housing allowances or tax reliefs for homeowners. Between 2009 and 2015, for instance, public expenditure on housing development dropped by 44% to only 27 and a half billion euro, while spending on housing allowances rose from 54 and a half billion to over 80,000,000,000 €. So in many ways, we are now living with the impact of this because we know that demand-side policies push up the prices.
And we also know that using tax policy to aggressively incentivize home ownership, as has been and continues to be the case, has shaped where public support goes. A large share of housing programs across Europe has favored homeowners. As of 2018, there were 90 programs for homebuyers and owners across 26 countries, compared with only 60 programs for tenants, including social housing, incentives for development, and measures to reduce rental costs. So, in other words, most public spending still rewards buying rather than expanding affordable rental options, a story that has contributed to rising prices and limited access for young people. And what becomes clear when you look at housing systems that actually do produce affordable outcomes for young people is that they have a healthy composition of different housing types.
There's plenty of nonmarket and municipal housing to keep a leash on the private market. And in these housing systems, the choice isn't just between an overly expensive private rental or home ownership, but between different forms of renting and ownership: social, cooperative, municipal, or private.
Speaker 1
Thank you very much. Very interesting points. Thank you. So coming, of course, from the perspective of youth that in this market, whether a winners and losers, you've made very clear the frustrations of youth at the extent of the income cost gap in terms of average young people, particularly those living in cities and towns who often struggle even to get access to housing. So two very clear points coming from the perspective of people on minimum wage and young people, mister Hajipantella.
What's your view about the extent to which housing taxation can improve or impede housing affordability?
Michalis Hadjipantela
Okay. Thank you. I would like to welcome all of you here at the European Parliament. Before I give my assessment, it's good to, when you have a problem, identify the reason of the problem. Why do we have a housing crisis?
We have a housing crisis because we don't have a lot of supply. One of the reasons. Second reason. Housing is expensive. Why is it expensive?
It's expensive because we have managed recently, with the help of the European Union, to increase prices of raw materials. And I'm saying with the help of the European Union because we had a huge investment plan in a few years where we had to build a lot of infrastructure that gave a sign that raw materials will increase, and we managed to increase the prices. The second reason is why it's expensive to build now. We have managing the European Union to overregulate. We have to build the house, so much regulation.
We don't use technology. We don't use artificial intelligence to make things easier. So this makes prices very high. Another reason for this is the fact that there is a lot of demand for houses. With the introduction of Airbnb, a lot of people prefer to use their houses with Airbnb.
I'm sure in a lot of European Union cities, this is not regulated, so they don't pay taxes. They avoid taxes. And they give incentive to house owners instead of renting the property to have it on Airbnb. So we limit the supply as well. So how do we tackle this problem?
The supply side. I'm in favor of giving incentives. We have to give incentives. We have to give incentives to increase the supply, to increase building a lot of houses. When we built, we should give incentives as well where possible to increase the percentage of the build built in prem permit to build as many floors as possible.
So with this way, we can by increasing the floors, we can have available floors for vulnerable, for poor people, for first time owners. We have to give tax incentives. When first time buyers buy a house to be able to claim tax credits. Developers that provide the market with housing, which help to increase the supply of housing, we can give them additional tax credits. And on the other hand, in order to reduce the prices, we have to regulate, for sure, the Airbnb market.
We have to give incentive to landlords to aim for long term rentals, because if we have long term rentals, this turns the rent to go down instead of having short term rentals. And as well, the main task of the European Parliament is we have to simplify the process of having permits, have to simplify the way we build houses. I think we all, nowadays, we know how to build a house. So we have to find a simplified way. And with this, we have to try to reduce the prices of the houses in order to reduce the price.
So with this way, we'd be having affordable houses for all the European Union citizens. Thank you very much.
Speaker 1
Thank you very much indeed, Mr. Hadjipantella. Very interesting. The contrasting responses you're stressing here, the role of supply, and we need, therefore, to look for incentives to increase that supply, the cost of housing, the cost of raw materials, the fact that you believe we've overregulated and we're not using technology wisely enough. And you've also put your finger on the short-term rental issue. And a number of these issues are covered, of course, not just in our European affordable housing plan, but also, of course, in the European Parliament Housing Committee report.
Lots of reading material for those of you who are new to this topic. But thank you very much for all of those answers, which I think open up our question very, very well. Perhaps, Hajipantella, for the next round, I could begin with you. In the draft report I've just referred to, the house committee calls on the member states, and I will now quote, to adopt an efficient and intense incentive-based tax system for housing policies and for the commission to undertake a thorough assessment of how tax incentives at national level affect the housing market. So clearly, there's some homework there for the European Commission, which we take very much on board.
But perhaps I could ask you, how do you foresee the potential work ahead for the European Parliament to address this new and difficult issue of housing taxation?
Michalis Hadjipantela
Listen. First of all, I forgot to mention that we are very happy that this issue of the housing crisis, we discussed in the European Parliament. It was one of the priorities of this mandate of all of us, so we're happy that we are discussing this. I think my ideas as I was a former minister of health that I served during the pandemic, I have realized that all difficult and all crisis of Europe, we can find solutions when we are united in the European Parliament. So I think the reason of this report, I think it's easier to tackle a crisis like the title of our panel today, housing crisis, when we act united, and especially when we have the resources of the European Union, of the European Commission.
I forgot to mention that there are other ways of financing housing of the European Union through other instruments, the European Investment Bank, where they can give very cheap loans and cheap capital to member states or individuals to build the housing. So we're expecting the European Commission, which is the body that oversees all the legislations of all the committees, the work of the parliament, the European Investment Bank, to come up with ideas, with solutions of how to tackle this crisis. This is how we would like to have it and would be able and would be pushing for this because this housing is a need for everyone. Housing, it's something that all the European Union citizens should have available at very low prices.
Speaker 1
Thank you very much indeed. And you've also put your finger on an essential topic, namely, housing finance. Anecdotally, I went to visit the mayor of Rome early on, and he said, I'm happy to talk to you. If you've brought me a billion euros, I can invest in social and affordable housing. And I had to tell him I didn't bring my wallet.
Is a serious question looking for finance, and how we can draw in the type of responsible private finance, the patient capital, is of course one of the key questions. We'll be looking at that in what we call the pan-European investment platform, this new vehicle we're setting up with the European Investment Bank, with the national promotional and regional banks. And just to show you just how much financial firepower is out there, they've indicated to us that they're willing to spend around €375000000000 over the next four or five years to support social affordable housing. So we can draw in this money, and now we've got to make sure it's channeled, as Irene Ateniali would say, to the right sort of housing to address this financial crisis. Thank you very much indeed for that answer.
And by the way, as you're from Cyprus, a brief piece of advertisement for the Cyprus presidency, who are looking at housing in a serious way. There'll be the first informal meeting of one of with housing ministers and key members of the European Parliament and stakeholders taking place in Cyprus in May, and we're all looking forward to that, not just because we're in Brussels and it's March. Turning, if I may, to Esther. You mentioned in your first answer the issues around financialization. And we heard from mister Hajiprantella the issue of short term rentals and also a lot of talk about the need to address speculative behavior in the housing market and how taxation could be a key tool to address these things.
But increasing taxation to some activities, for example, income from residential real estate investment funds, the famous REIT, could, some people say, be linked to hindering investments or linked to keeping housing markets off the rental housing units off the rental market. So in your view, how can we use housing, taxation as part of the toolkit to help reach our overall housing policy objectives, and how can we keep the unintended effects in check?
Speaker 21
I think that the core question there is why is tax so low on it, it's not that it's too high. It's why is it so low. As I was saying that it's created an uneven playing field between families who want to buy a home and the hedge funds who are coming in and buying everything up. I know that. I mean, in Ireland, it's a big issue that when families go to try and compete, the tax policy is actually hitting and providing a significant and unfair advantage to those, let's say, hedge funds.
But I think that what was particularly interesting from Cyprus was the idea of really tackling the supply and this other, and I don't think when the mayor said to you, I need money, that that wasn't real. I think that's real. And I think that the reason for that is that the fiscal rules put such a constraint on member states that it doesn't allow them to allocate the necessary spending to housing. And that is counterproductive for a number of policies, whether it's making sure that we have workers close to the jobs that we're trying to create or whether it's about making sure that we're competitive. To be competitive, we need homes for people to live in.
Those homes need to be close to the schools. They need to be close to the transport. They need to be close to the jobs, and they need to be affordable. So we need to start thinking more about the productive investment that member states would be making when they were building homes for affordable homes and social homes, the mix that the colleague here from the youth forum was talking about, that shouldn't be seen as a cost. That should be seen as a productive investment and recognized as that, contributing towards competitiveness, not a drag and a cost.
But when we do that, we have an extra demand because we need to have a win. And so the third win we can get is to make sure that whenever there are tax incentives and whenever there is financial support from public money, that those go to create quality jobs. And the quality jobs with good terms and conditions, the type of pay, the type of collective agreements that will allow workers to have a secure future for themselves. Because there could be nothing more unjust than asking people to work for unfair terms, cutthroat terms and conditions, low pay, all funded by working people's tax money that's gone to those investors. So what we want is the triple whim.
Then finally, I did just want to challenge this idea about the permits because I hear it in a lot of different environments that I go to. The way in which we can make permitting faster is to have more public servants working on the permits. One of the challenges that we have at the moment is that the cutbacks, there's cutbacks, and there's less and less public servants actually doing the work on the permits. So the challenge for the permitting is speed, it's not wise to get rid of all the deregulations that were often put in because of, like, quite severe, whether it was pyrite in the building, whether it was fire provisions not being made, whether it was homes destroyed because they weren't because they were built on flood zones, or like, lots and lots of reasons behind the regulations came out of hard hard consequences. You know, like, they weren't rules that were just drenched up, that they were regulations put in to ensure the health and safety and sustainability of the homes that we're building.
So that's just a word of caution about throwing the baby out with the bathwater in the discussion about the permits. Thank you.
Speaker 1
Thank you very much. We agreed before we started the panel. We try to stir it up a bit, and thank you for doing that. And while I approve as a general principle of keeping babies in the bathtubs, can I just pick up a small corollary on the parent planning and permitting question? We think in the commission that it's incumbent on all of us, starting with the commission, but also looking to member states and local authorities to have a hard and honest look in a true simplifying way, not a deregulating way, at how our regulations could be impeding that.
And I'll give you one example, which we cite in the plan, which is in some local authorities, there's a requirement to have a minimum number of car parking spaces in a new apartment, which drives up the cost of construction by between 10-20%. So, not every regulation, not every tax policy or incentive is perfectly designed to help us achieve affordable and sustainable housing. So, it's a plea, a gentle plea. We'll be doing our homework in the commission over the coming years to look at the simplification question, not deregulation, to see how we can do better, and we think we need a joined up effort on that. Sorry, sir.
Do you wanna come back?
Speaker 21
Yeah. Can I ask on that? I are you going to guarantee then that there's public transport available, or how are people actually gonna get to work?
Speaker 1
Well, that is indeed a key question. When you think about affordable housing, you need to also think about sustainable mobility, including, of course, public transport, to make that happen. And if you get that right, you can extend the decent commit commuting zone to find where the jobs are. We approve of that. Can the commission guarantee it?
Wish I could. I can. But it's a valid point. One more, then we'll go on.
to the
Speaker 21
But then you should be very slow to remove a requirement for car parking spaces. Because if you don't have the solution like, car parking spaces are the solution to the building of apartments often quite a long way outside of town. So if you're going to remove the requirement for a car parking space, you'd want to have in place a certainty about the solution that replaces the car parking space.
Speaker 1
I hear you. I hear you, and it's my fault for taking us down into the weeds. I can't solve all of these. We can't solve all these issues. The commission is here to help in that famous phrase.
Let's get back to tax. Sina, you were very eloquent in your remarks about the issues for youth. Do you think, and this is a kind of a leading question. Do you think there's an age bias in taxation? For example, low taxation on inheritance and capital gains versus income tax is hindering young people's access to affordable housing.
Obviously, your answer to that question is no. No. Sorry. Go on.
Speaker 23
I mean, unfortunately, my answer has to be yes. I would say so. And, actually, it goes right to the heart of how housing inequality has deepened across Europe, with young people all too often actually facing the hard, the poignant end of the stick. And in simple terms, the way we tax housing, wealth, and income creates inbuilt advantages for older asset-rich generations and disadvantages at the same time for young people who rely primarily on earned income from work. And in many EU countries, inheritance, capital gains, and wealth are taxed very lightly or benefit from generous exemptions, while income, including wages earned by young workers, of course, is then taxed much more heavily.
And this means that older generations who have accumulated wealth through property or family assets can use that wealth to buy homes or to support their children. And this also means that, and that is actually the heart of the issue, that a growing part of the housing market is ending up in the hands of very few very rich individuals, either directly or through corporate assets. And in our market economy, there is really no other realistic option than wealth taxation to bring wealth concentration back to a socially acceptable and, frankly, economically viable level. The housing crisis is a very clear symptom of a combination of stagnating wages for the many, wealth concentration for the very few, and tax systems focused on the income of common wage earners. And young people, most of whom do rely mainly on their salaries and don't have access necessarily to family wealth, are left struggling, and their incomes are more and more stretched to meet their housing needs, as we've heard multiple times already.
And that's not just about rent. Right? It's house prices as well. And those across the EU have risen over 50% since 2010, far faster than wages. So for a young person, the average home now costs around 11 times their annual salary, which is well above the standard affordability threshold of 3 to 5 times a person's income that we often hear.
And those with family wealth, property, or inheritance, they are in a far stronger position than those trying to get on the housing ladder on their own wages. And the result is that housing access is increasingly determined by family wealth rather than income or effort, frankly. And those with inherited assets are in a far stronger position than those relying solely on wages. And this is creating a systemic age and class bias, and both of those then also interact. So a fairer tax approach, one that taxes inherited wealth more progressively, as we've also heard in our Nobel Prize conversation, and uses that revenue to then fund social and nonprofit housing supply is the way to level the playing field and to give young people a real chance at affordable housing.
Speaker 1
Okay. Thank you very much indeed. You're a great advertisement for Europe, European Youth Forum, which you reminded me earlier on, represents 40,000,000 young people, nearly as many as Esther claims, rightly, that she represents 45,000,000 for the ETUC. You've heard a lot from our panel. Now we'd like to hear from you.
And I've been given a very strict list of questions here, which are already noted, and you have one minute to make your question from the floor, please. And I'd like to ask in seat number 239 from the Austrian Federal Council, mister Christoph Matznetter, who's a member of parliament for the S and D group. Mister Matznetter, over to you.
Speaker 26
Thank you very much. There was a short time only in panel one, there was no possibility to speak. It was only the small historic irony that the nation like the US built it on the confrontation with a military superpower, Great Britain, because
they.
Speaker 26
are extracting the value across the Atlantic. And then you have the Boston Tea Party, and independence is now bringing our values transatlantic. Have to, but coming back, it's a short time for this. We need a toolbox for the housing crisis. And I'm born in Vienna, and I live in Vienna.
It's an invitation to come there. We have two third of social housing. All the nonprofit organization, nonprofit corporatization. We have regulations for Airbnb. It's not allowed in housing zones.
For the rest, you need the permission for only ninety days. It's controlled. If there's a key box, they are coming in spectrum, then we'll close up this. We have the situation that 0.5% of all salaries is given to a fund, and from this, new buildings are financed. And it's a nonprofit organization.
And in Vienna, if there's a new zoning, there has to be the public transport, kindergarten, all the things. But the second is, if you want the permission to construct your houses, two thirds has to be social houses. So there's an enforcement that for each new square meter, two thirds are for social housing. So invitation comes to the Red Vienna. Looking there, it's mainly in the toolbox to learn also for other countries.
It's a benchmark. Thank you very much.
Speaker 1
Vienna, to learn the unique situation that you have there, and I'm very jealous. I haven't had the chance to go, but I will take up your invitation. The house of Vienna here in Brussels more than makes up for that with the advocacy for what you're trying to achieve. Mister Hajipantella, you want to address one?
Michalis Hadjipantela
Just to it's very correct the comment. And, when I was looking at statistics where there was increases in prices in the European Union, the only city that we didn't have increases is Vienna. I didn't know. Now I know the reason from our colleague. I was in Vienna in November, but this is the beauty of the European Union.
We have to share expertise of the best countries, and I'm happy that you have raised this. This is something that we are not aware of. We have here Dara Bortel as well, our colleague for the fight for the housing, and we'll be happy to listen to you about how you manage not to have an increase in prices in Vienna the last years? Thank you.
Speaker 1
No. And no homeless people, said the speaker on the floor. Noted. And many more people want to come visit. Anybody else want to comment?
Should we go to the next question? From Italy. And seats 100 cento noven Novante nove, 199 from the Senate, Massimo Garavaglia, who's president of the finance committee. Mister Garavaglia, over to you.
Speaker 27
Thank you, Mr. Chairman. Well, I've got three questions. When you have a problem, just taxation is not the solution to the problem. It's better to compare taxes and costs at first. Why are housing costs increasing merely?
Because of the green housing directive, imposes 50 to 60,000 euros for investing in their family. And those families who can't make those investments will be taking their earnings. So we need to suspend that directive because it really does not take into account certain regions, and it can't, and then why the rents go up? Because there's not enough supply in Milan. We've got 100,000 private houses which are rented.
1% is paid online, and then 13%, how there's 13% of houses are empty, but they're afraid to rent them because they would have to pay. Because we need this, if we suspended this directive, it would really help the housing situation.
Speaker 1
Thank you very much indeed, Mr. Garavaglia. So, taxation is not the central issue. We should end our regulation of greenhouse gases, and rents are going up because there is not enough supply. Who wants to tackle that one? Yeah.
Sina, please. Yes.
Speaker 23
So I just wanted to comment a little bit on this supply question. Yes. It is a supply issue, but not only. As I've said before, so many homes are vacant. So many homes are under-occupied.
So, yes, more supply, but not just more supply, period. It needs to be also the right type, like not just luxury flats, for example, not just housing building by developers for speculation reasons to then stand empty potentially, but in fact, an increased supply of affordable housing that is actually accessible to those who need it most, and that means having that mix and not just relying on the private market.
Speaker 1
Thank you very much. I think we've got time for one or maybe two more depending how crisp your questions and your answers are. So let's go to Greece to seat number 111, and from the Hellenic Parliament, Xenophon Baral, excuse me, Baraliokus. It was my best shot. And you're a member of the committee on economic affairs.
Over to you, sir. Thank.
Speaker 7
You, Mister Chairman, distinguished members of the panel, ladies and gentlemen, colleagues. The housing crisis is one of the most important challenges faced by Europe today. It affects the young people especially, but a large number of households, especially medium income households, undermine social cohesion. The strategy of my country, Greece, foresees the adoption of policies, on the one hand, by increasing the housing stock and, on the other hand, by supporting the income of households such as the establishment of subsidy, housing subsidy, the return of an amount for the rent and the student subsidy. On the tax level, we have deductions and reliefs to upgrade the buildings to provide closed houses on the market, and returning on the long-term lease market.
At the European level, we welcome the first plan for affordable housing, and we consider that the rules of grants should be simplified in order to achieve these investments. At any rate, to tackle the housing crisis, we need coordinated European and national action. And as you said earlier, all of you, house is not just an economic good. It is first and foremost a fundamental social right. Thank you.
Speaker 1
Depending how crisp your questions and your answers are. So let's go to Greece. To seat number 111, and from the Hellenic Parliament. Xenophon, Baral, excuse me, Baralillo Baralioka.
It was my best shot. And you're a member of the committee on economic affairs. Over to you, sir.
Thank you.
Speaker 7
You, Mr. Chairman, distinguished members of the panel, ladies and gentlemen, colleagues, the housing crisis is one of the most important challenges faced by Europe today. It affects the young people especially, but a large number of households, especially medium income households, undermine social cohesion.
Speaker 1
Thank you very much for reminding us of that, and for your kind words about the European affordable housing plan. Esther, please.
Speaker 21
I think this might be the last time I get the floor, so I realized I didn't say anything good about the I noticed. Yeah. No. Exactly. So I should have done that because I think that it's so important that the commission is taking a lead in driving the discussion forward.
Speaker 7
The strategy of my country, Greece, foresees the adoption of policies on the one hand by increasing the housing stock, and on the other hand, by supporting the income of households such as the establishment of a housing subsidy, the return of an amount for the rent, and the student subsidy.
Speaker 21
And I think by putting the issues on the table exactly as we're doing today, that's how we can move forward. I'm very confident that there will be concrete measures coming out of the discussion. I think this idea of the subsidies is a very interesting one. I think it's one that that that deserves almost a discussion on its own. Because the last thing we want is subsidies that just start driving the prices up.
Speaker 7
On the tax level, we have deductions and reliefs to upgrade the buildings. To provide close houses on the market, and returning on the long term lease market.
Speaker 21
You know? Like, you have to avoid that. But I think that there are different examples we can look at, particularly the Reviena examples where you can look at nonprofit, you know, approaches, which do deliver great quality, a great mix, exactly the type of homes that people can aspire to, that want to live in, that they see themselves and their families succeeding when they live in those homes. But for the moment, what's crucially important is to tackle for people on minimum wages, that very clear crunch issue that even if you work a whole week, you can't afford the rent. If you work two jobs, you still can't afford the rent, or you can just about afford the rent, but you can't afford anything else.
Speaker 7
At the European level, we welcome the first plan for affordable housing, and we consider that the rules of grants should be simplified in order to achieve these investments. At any rate, to tackle the housing crisis, we need coordinated European and national action.
And as you said earlier, all of you, house is not just an economic good. It is first and foremost a fundamental social right. Thank you.
Speaker 1
Thank you very much for reminding us of that, and for your kind words about the European affordable housing plan. Esther, please.
Speaker 21
Think this might be the last time I get the floor, so I realized I didn't say anything good about the I noticed. Yeah. No. Exactly. So I should have done that because I think that it's so important that the commission is taking a lead in driving the discussion forward. And I think by putting the issues on the table exactly as we're doing today, and that's how we can move forward.
So there needs to be very targeted solutions for that group, and to recognize that some people might be just a tiny bit above the minimum wage, which a lot of workers are. Essential workers, nurses, care workers, and people that we need to keep our cities going, that we need to keep our community going, often public servants. So we need to make sure that people can afford a home no matter what job that they're doing, and subsidies can definitely be a part of that.
And have every confidence that there will be concrete measures coming out of the discussion. I think this idea of the subsidies is a very interesting one. I think it's one that that that deserves almost a discussion on its own. And because the last thing that we want is subsidies that just start driving the prices up. You know? Like, you have to avoid that.
Speaker 1
Thank you very much indeed for your kind words and also for reminding us of this question. Then it's about people who are struggling all across Europe, young people in cities too, as the Americans would say, make rent. You gotta make rent, and that's what people are struggling to do. And let's remind ourselves, we haven't had time to talk about it today, about the consequences if you don't pay rent. It's homelessness or overcrowding and degradation, and I'm very pleased.
Speaker 21
But I think that there are different examples we can look at, particularly the Reviena examples where you can look at non profit, you know, approaches, which do deliver great quality, a great mix, exactly the type of homes that people can aspire to, that want to live in, that they see themselves and their families succeeding, when they live in those homes. But for the moment, what's crucially important is to tackle for people on minimum wages, that very clear crunch issue.
Speaker 1
I'm proud that the commission, together with its partners and the Parliament, is taking this on. The work continues. The anti poverty strategy is coming out in April, and watch this space for recommendations on how we can address housing exclusion and homelessness. Now I'm getting signals from the organizers like this, and stop. So, just before we do, your balding, aging moderator has been transformed into a fairy godmother.
Speaker 21
That even if you work a whole week, you can't afford the rent. If you work two jobs, you still can't afford the rent, or you can just about afford the rent, but you can't afford anything else. So there needs to be very targeted solutions for that group and to recognize that some people might be just a tiny bit above the minimum wage, which a lot of workers are, essential workers, nurses, care workers, people that we need to keep our cities going, that we need to keep our community going, often public servants.
Speaker 1
And I'm going to invite all of you to tell me in a couple of sentences, please, if you could grant you one wish, which will come true in relation to the housing crisis and preferably on taxation. And perhaps you could share that with the audience briefly. Starting with you, Mr. Hajipanter, please.
Michalis Hadjipantela
Tax incentives to increase the supply and simplification. Simplification of built-in houses.
Speaker 21
So we need to make sure that people can afford a home, no matter what job that they're doing, and subsidies can definitely be a part of that.
Speaker 1
Clear and crisp, and your fairy godmother will forgive you for asking for two things. Ascena.
Speaker 23
I would say a tax system that taxes those who have a lot in wealth and not least also in houses, in such a way that we have enough funds to ensure housing as a basic right for everyone.
Speaker 1
Thank you very much indeed for your kind words, and also for reminding us of this question. Then it's about people. Who are struggling all across Europe, young people, cities, to, as the Americans would say, make rent.
Thank you. Equally clear. Esther, you have the final word.
You gotta make rent. And that's what people are struggling to do. And let's remind ourselves, we haven't had time to talk about today, about the consequences if you don't pay rent.
Speaker 1
Oh, there you go. Thank you very much. Listen. It's not easy following two Nobel Prize winners in the after-lunch slot. I think you can agree this panel has been absolutely marvelous, and not just keeping you awake, but keeping you stimulated.
It's homelessness. Of overcrowding and degradation, and I'm very pleased. I'm proud that the commission, together with its partners in the Parliament, is taking this on. The work continues. The anti poverty strategy is coming out in April, and watch this space for recommendations on how we can address housing exclusion and homelessness.
Thank you very much indeed. Big round of applause, please, to the audience.
Now, I'm getting signals from the organizers like this, and stop. So, just before we do, your balding, aging moderator has been transformed into a fairy godmother. And I'm going to invite all of you to tell me in a couple of please. If you could, I grant you one wish which will come true in relation to the housing crisis and preferably on taxation, you could share that with the audience briefly.
Speaker 2
Thank you. Thank you to you as well, Matthew, for trying to keep within the time frame, and we are within it. I also learned that there's less than a billion euros in your wallet, which is data that the tax service could mine on, but still we need to determine how less than a billion there is in your wallet left. And he's also a brave Brit indeed because it's Saint Patrick's Day today. So now it's time, ladies and gentlemen, for a coffee break.
Speaker 28
Starting with you, Mr. Hajipantha, please. Tax incentives to increase the supply and simplification. Simplification of built-in houses. Clear and crisp, and your fairy godmother will forgive you for asking for two things.
Speaker 2
I see that it's seven past four. We will meet again and start again here at 16:35. Thirty-five is the kickoff again for the final panel. So at home, you will have time for a coffee as well, a little less than half an hour. If you reenter or exit, don't forget to take the speaking cards for the final panel.
Speaker 23
Ascena, I would say a tax system that taxes those who have a lot in wealth and not least also in houses, in such a way that we have enough funds to ensure housing as a basic right for everyone.
Speaker 2
If you want to ask them a question and hand them over to the ushers, that will still be circulating for the final panel as well. Enjoy the coffee, same spot as earlier on. So take the stairs one floor down. People upstairs, take the elevator to the 1st floor or in the antechambers. Have a great coffee and a tea.
See you later.
Speaker 1
Thank you very much. Listen. It's not easy following two Nobel Prize winners in the after-lunch slots. I think you can agree this panel has been absolutely marvelous. Not just keeping you awake, but keeping you stimulated.
Thank you very much indeed. Big round of applause, please, to the audience.
Speaker 2
Thank you. You. Thank you to you as well, Matthew, for trying to keep within the time frame, and we are within it. I also learned that there's less than a 1 billion euro in your wallet. Which is data that the tax service could mine on, let's still, we need to determine how much less than a billion there is in your wallet left.
And he's also a brave Brit indeed because it's Saint Patrick's Day today. So now it's time, ladies and gentlemen, for a coffee break. I see that it's seven past four. We will meet again and start again here at 16:35.
Thirty-five is the kickoff again for the final panel. So at home, you will have time for a coffee as well, a little less than half an hour. If you reenter or exit, don't forget to take the speaking cards for the final panel. If you want to ask them a question and hand them over to the ushers, that will still be circulating for the final panel as well.
Enjoy the coffee, same spot as earlier on. So take the stairs one floor down, people upstairs take the elevator to the 1st floor, or in the antechambers. Have a great coffee and a tea.
See you later.
Speaker 2
A. Very good afternoon, everyone. Thank you for being back at 06:16 thirty-five as requested for the final panel, with a very interesting subject on how can taxation boost the savings and investments union.
Let me call to the stage no. Yeah. I can actually call them to the stage already, because that way you can take up your seats. Martin Bresson, public affairs director of Invest Europe, and the three panelists join me on stage. And while you're taking a seat, for all of you, this is the final voting opportunity.
So as you already learned this morning, every panel deserves a vote, because we need to know what you're thinking. So we will launch a final question, fifth and final vote. And that final question is, you will see because now you're fully aware of how the system works. The questions become longer and more complex, so we need your full attention and focus before you say yes or no.
Are tax incentives a cost-effective tool to motivate households to increase their participation in capital markets? Our tax incentives are a cost effective tool to motivate households to increase their participation in capital markets. The vote is open.
Same system like you've done before. Yes. And I see that everyone is well aware of how the system works by now. Hands in, red button, green one or the white one, to cast your vote. And I would say that the vote is closed. Please show us the results, the final results of today.
99 say yes, but 70 say no. So it's not that clear, as with the other panels. So that means that there's a lot for you to debate on and maybe influence people's minds by the end of your panel discussion.
The floor is yours, please, and to your panelists as well.
Thank you very much.
Speaker 29
For that. We're just about to kick off and indeed it is the last panel of the day. I don't know if we saved the best for last. I'll leave that for you to judge.
But we are in a tough spot to follow, two noble laureates and a very lively debate. Hat tip to Matthew Baldwin and the panelists from the panel just before us.
I'm just gonna briefly tee us up. So we're talking about the savings and investment union, and I think one of the key points here is that Europeans there have no shortage of savings. Actually, European households are amongst the world's most diligent savers. But we struggle to challenge those savings into the kind of investments that will drive growth, innovation, and jobs.
Too many of those money remain in low risk, low return products, while many businesses, especially smaller and more innovative ones, find it hard to assess long-term capital. That gap is at the very heart of the ambition to build a savings and investment union.
And I know we've all mentioned Draghi a couple of times, I'm going to mention it again. This is inspired by the Draghi and the letter reports. And the idea is simple but powerful. Make Europe's financial system work better, for citizens and then for the economy, evidently.
So one of the key tools in this discussion is taxation and how taxation can, if at all, drive retail savers to invest more. Retail savers play a crucial role in financing the economy.
Mainly through deposit. But as I just mentioned, maybe those deposits are not the most effective way of driving growth forward. So the tax system being a factor, but it is still a highly fragmented different tax rules across member states for savings, for capital gains, investment products, makes it harder to invest cross-border. They limit choice, they reduce competition, and they hold back the development of a truly European capital market.
So credit to the European Commission. A number of steps have already been taken. And we look to more. I think with a com coming on Omniverse, and the recent faster initiative to be mentioned.
But key questions to explore today. And is exactly how far can the EU go in creating a more integrated investment landscape while respecting the national differences, and what role does taxation play in that? Those are the key questions.
I'm not gonna answer them. I have been very, very fortunate to have the help of a brilliant panel. And I'll just briefly introduce our panelists. Left to me is mister Florian Wimper. He's the head of European Affairs and the German Insurance Association. He leads GDV's advocacy and public affairs here and engages with the policymakers on a number of issues.
Including now, Florian, also the taxation. He holds a master's degree in economics from the University of Cologne and the Trinity College of Dublin. To the right of Florian, we have a professor of economics at the University of London.
Sorry. To the very right is Daniela Lago Gabaud. She has studied, she studies central bank shadow money and just transitions, which may be a key issue for this today.
She served as an expert adviser for the European Parliament, the G20 under the Brazil presidency, and the Euro United Nations fourth financing and development agenda, and she's teaching international finance, macroeconomics, and global economic policy analysis.
And so we have Daniela. And next to Daniela, or right in the middle, we have Deborah Revoltella. She's the chief economist of the European Investment Bank. And has designed and led the flagship publication on EIB investment report. She launched and led that process and the implementation of the investment survey. Covering 12,500 European firms, that report is a unique asset in our understanding of what the investment dynamics are in Europe.
So she's a member of the investment steering committee of the Vienna Initiative and CompNet, another degree in economics, master in economics from the Bocconi University, and a PhD in economics from the University of Ankara.
So I'm gonna pass the floor with a couple of questions, and then as per normal, handover. I will not limit the plethora of perspectives we can get from our panel, but I would frame it like this.
We have private investors, institutional investors. We have public institutional investors, and we have academia offering depth and insights. So I think I hope we can cover not all questions and all issues, that will bring us to a deeper level of insights on this issue.
And on that happy note, an introduction, I'll just throw one question out there. In your view, what are the key elements that need to be in place to ensure the success of the savings and investment union? Redirecting savings towards productive investments, and how can taxation contribute to this success? I'm going to start with you, Daniela.
Speaker 30
You. Well, good afternoon, everybody, and congratulations on still being here. I wanna take a step back and talk about the aims of the savings of an investment union. And to remind ourselves that the aims are to redirect savings, household savings, but also retirement savings towards productive investment. And to create a financing ecosystem organized around the capital markets.
And this will get us the €800,000,000,000 that Mario Draghi told us in his famous competitiveness report that we need in order to meet the existential challenges that Europe is facing.
And I wanna set the scene by being slightly controversial, because that's what academics are supposed to do, and to say that I find two fallacies at the core of this savings and investment union plan. And I think it's important to understand these fallacies in order to have a clearer conversation about how we move forward in terms of success. There is first a savings fallacy that I find here, which is, and we hear this very often, that Europe has a pool of savings trapped in bank deposits. And if we use taxation and non-taxation measures, we can redirect them towards capital markets. We can encourage households to take more risk to invest more like Americans, I heard a couple of times.
And this will solve the shortage of investable capital that European companies are facing. And I think this is wrong. Just to be very clear, this is wrong. I want to cite the paper from the European Central Bank that shows that nonbank financial institutions or institutional capital is larger in terms of the financial assets that they hold compared to GDP than the US, the nonbank financial institutions. Around 450% of GDP compared to 380% of GDP in the United States.
So we do have a large market-based financial system in Europe. We do not have a shortage of investable capital. And creating pan-European savings vehicles via taxation or other measures will only add to this glut of institutional capital that is chasing profitable assets across borders.
I think what we have is a shortage of investable projects in Europe, and that's a very different question. And this takes me to the second fallacy, the investment fallacy. And it basically says, if we get investment, if you get savings right, we will get investment right.
But if we look, for example, at open ended equity funds in the Euro Area, a lot more is going into investing in the US equities, in big tech, basically, than it is in your European equity.
And what I want to suggest here is to solve this fallacy, what we need in Europe is capacity to steer credit into strategic activities, into strategic projects that the European Union needs. And we can solve this steering problem or this credit capacity problem by, for example, adopting the kind of mandatory investment rules that Europe that The United Kingdom is adopting for pension funds, but also other institutional investors, and also by reviving the European Central Bank's to do credit policy, which it did a couple of years ago under the decarbonization of monetary policy measures.
Speaker 32
Thank you. Deborah, I'm not gonna ask whether you agree, but I am gonna ask back to the original question maybe.
Speaker 33
Speaking about the fallacies. I think there are a different way to say the same thing.
And I agree with you that the problem, if you are in Europe, is not the lack of savings. I think Europe has a lot of savings. We know that household save 15%. The saving ratio is 15% in Europe versus 5% in the US. Europe has accumulated gross financial assets of 35,000,000,000,000. The point is that they are in deposit and fixed income, and when they go to equity, they go to equity across the ocean.
So that's the problem for me. The fact that there is the capacity to intermediate resources is somehow blocked. And when there is a transformation to the equity market, that's hardly going to equity and the risk taking out at the European level.
So what we think is that, actually, Europe has everything to succeed. Actually, Europe is very good in innovation in certain sectors. We heard before, yes, China is very good.
True. US is very good in a very few important sectors, was Stieglitz saying. Europe still has a capacity to innovate quite a lot, as good university as a good start-up ecosystem. The missing link, and that's what we always call, is the scale-up gap. So there is a point in time in the growth of firms where the funds in Europe are not big enough to support the companies, and we think there is 70,000,000,000 per year scale up finance gap in between.
And that's the one that institutionally we are trying to look at. We think that there is a bigger role for institutional investors. I look at my right, pension funds and insurance. They are normally smaller. Maybe not insurance. Pension funds are smaller than in The US. They tend to have lower equity investment.
And when they have equity investment, it is a lot of either American or very strong unbiased. So there is something also on institutional investors to when they transform and go into equity to have it more cross border at the European level. And that's something that we are looking at.
Actually, as an institution, we are very active in the civil and union. I try to do our part. We think that, and again, I come to what you were saying. We think like the '28 regime is super important because it's a part of how you change the system. In order to make sure that the companies have become investable wherever they are and easier for investing.
And then we are looking bottom up at what kind of instruments we can play. And it's actually a bottom-up approach that we are taking. Just one second. As an institution, we are quite strong on venture capital and venture debt.
We are 30% of a venture debt market, 24% of venture capital as an indirect player. We think, in the scale-up phase, we have to do more. We have experience. And now what we are trying to do in these larger funds, we are trying to really work with you guys. And, hopefully, we are coming up with a number of proposals working together to try to see how we can bring those insurance and pension funds.
Some have excellent capacity to invest by themselves in scale-up. They are very good. But usually they have home buyers. And we are trying to see if there is something pan-European that we can do with, and they see that you want me to start to stop. So I leave it.
Speaker 29
I don't wanna rush things, but you were actually pointing to Florian. And Florian, I promise you I wouldn't throw you under the bus, but you're almost the bank because according to two other panelists, we have enough savings. We have good innovation, good startup ecosystem. So the baseline problem must be allocation, and that kind of points to, well, your guys or my guys. Right? So but I'll ask you for a comment on that.
Speaker 34
After I've asked you for the preliminary question, the key element that you think needs to be ensured to succeed on a savings investment union? I think we can combine the two just immediately, I think.
Speaker 35
I don't think I'm thrown under the bus here. I'm more guided to the station, to be honest. We had a brief exchange before. I also don't feel that I'm very controversially attacked or put in the picture.
I think if we look at the SIU, it's a very wide framework. You touched also upon the twenty-eighth regime. We scale up funds and so on. I think what I would like to do in the course of this panel today is a bit like looking at our core business, at our USP, so basically just transforming savings into investments, into retirement payments.
If you look at industry association representatives, as Martin highlighted, at the beginning. So if you look at the German industry that I represent today, roughly €102,000,000,000 in payouts and retirement savings in 2024.
Substantial number. Sounds a lot, but Draghi is always bringing higher numbers. Then think if we look at the savings and if they are there, likely, yes. Are they at the right places to make them work and productive? And I think that was your initial question, Martin. I think the fair answer is not really.
And there, I would like to pick up the second point, which Danila mentioned and where Deborah comes in with all her mighty power from the EIB. Do we have investable projects? And there, I think, is the clear struggle. I think getting this investment from bank deposit into put into long term reliable investments, into the right projects,
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