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January 22, 2004

Welcome to the EU, suckers

by Scott MacMillan

NOTE: The first version of this post contained a factual error. I’ve corrected it. The Hungarians and Poles did, in fact, successfully negotiate a transition period for their VAT laws.

One of the big items in the Czech papers yesterday was the fact that most restaurants and bars will raise the price of food on May 1, the day of Czech EU accession, as food gets slotted into the higher 22% value-added-tax category as per Brussels’ demand. On Tuesday, the EU rejected a French proposal to keep food in the 5% category.

I am not among those that think harmonized tax regimes are part of an evil socialist plot to radically redistribute wealth. But Jeez, people, could you not have come up with some other way to phase this in?

Think about it: On May 1, virtually nothing will change for the positive in the accession countries. Granted, as Doug Arellanes points out, prices of imported wine will drop substantially; and easterners will be able to work legally in the frigid zones of UK and Scandinavia. Whoop-dee-doo.

Meanwhile, a number of other countries (importantly, Spain, Austria and Germany) have insisted on “transition periods” periods of their own for the free movement of labor. This transition period could well last beyond the end of the decade. Sort of takes the shine of EU accession, no?

Finally, the one thing ordinary people will probably notice the most is that every dish at their favorite restaurant just went up in price by a good 17%. Apparently, the Poles and Hungarians successfully negotiated a transition period for their VAT laws, and VAT on restaurants will remain low there. The Czechs, thinking the French proposal would pass, didn’t even try. As a restaurant owner myself, surely I’m more sensitive than ordinary people to the VAT change. But from a purely diplomatic point of view, I really don’t think this is a wise move. I for one plan to put a big sticker on our menu reading, “Welcome to the EU! All items now 17% more dear!”

The fact that the Czechs didn’t even try to negotiate a transition period puts a new spin on things: Perhaps they want the extra revenue from a higher VAT, but don’t want to shoulder the blame. They can call it an “EU tax” and remind the populace that they voted for joining. Seems terribly unsportsmanlike.

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Comments

The price of imported wine falls and all you can say is ’Whoop-dee-doo’? That the price of imported alcohol might fall is the main reason a substantial proportion of the British population remains supportive of joining the euro! Or maybe that’s just me…

Posted by: Matthew at January 22, 2004 12:46 PM

Ah, but in the Czech Republic domestic beer is actually nice.

(OK, so the UK does have some good domestic bitters and ales. However, most people drink either imported lagers, brewed-under-licenses, or the top-selling “lager” brand, which I think is made by putting dishwater in a Soda Stream).

Is the Czech tax on food, or on restauranting? If the former, this seems particularly unfair: food is still zero-rated in the UK, over 25 years after VAT’s introduction…

Posted by: john b at January 22, 2004 01:32 PM

My cynical take on this ten years ago was that EU enlargement would be finished when at least one of the new members would walk in as a net contributor. Hello Slovenia!

Posted by: Doug at January 22, 2004 01:59 PM

The tax is one restauranting, not food itself. Here’s an article about the French proposal from December:
http://www.euobserver.com/index.phtml?aid=13842

Moreover, according to the Interfax translation of a Lidove Noviny report, I was mistaken in writing that Hungary and Poland had failed to negotiate a transition period. Apparently they did -- for themselves. The Czechs, thinking the French proposal to allow 5% VAT on restaurants would pass, didn’t even try. Duh!
http://www.interfax.com/com?item=Czec&pg;=0&id;=5682302&req;=

These are those little EU tidbits that you’d think would be easy to dig up, but never are. If anybody finds out more details, I’d love to see them.

Posted by: Scott MacMillan at January 22, 2004 04:51 PM

I find a VAT of 22% rather high. In Spain we have a 16% normal VAT. First need articles are at 7%. Why did the Czechs have so hight a rate?

DSW

Posted by: Antoni Jaume at January 22, 2004 08:34 PM

I wish I knew. Any EU tax law experts out there? Seems to me if the Spanish have 16% VAT on restaurants, the Czechs should be able to as well.

Posted by: Scott MacMillan at January 23, 2004 11:10 AM

Scott - I’m not exactly an EU expert, but I know it’s very hard for countries to set new differential tax rates (ie existing differentials can continue, but the EU frowns on existing members proposing new VAT differentials and on new members proposing any).

The Czech Republic, presumably because it wants to cut its budget deficit, has gone for a standard VAT rate of 22%. Because of the rules on differentials, it needs to apply this rate to more or less all non-zero-rated goods and services.

Posted by: john b at January 23, 2004 12:17 PM

As for why the Hungarians would have asked for/demanded a grace period, I would only observe that my favorite little cafe near Parliament is owned by a leading politician. That, and, restaurants are already so friggin’ expensive here, not even leading politicians eat out much anymore.

Posted by: Erik at January 23, 2004 03:19 PM

One other reason for the Czech-Hungo disconnect: restaurant food is already taxed at 15%, and drinks at 25%, which I believe is the highest standard rate in Europe -- so high I think even the EU says should come down a few points, to increase compliance. So maybe the Magyars just thought that they would wait and sort out both problems at once. Either way, it also helps to explain why eating out seems cheaper in PRG than BPT.

Posted by: Erik at January 24, 2004 11:41 PM