Tuesday 20 February 2018

ECB’s Draghi backs tax cuts in shift away from austerity

Mario Draghi
Mario Draghi

Donal O’Donovan

The President of the European Central Bank has admitted more has to be done to tackle the high rates of unemployment across the euro area and advocated cutting taxes to boost demand.

In what will be seen as a shift away from strict “austerity” policies Mario Draghi advocated governments being more flexibile in how they apply budget rules. It puts him on a crash course with Germany’s Angela Merkel ahead of budget season across Europe.

He made the comments at a major speech at Jackson Hole, Kentucy, in the US, where the head of America’s central bank the Federal Reserve  of “Fed” is hosting a major conference.  

And he said countries should spend more, though sticking within the eurozone’s target to keep deficits below 3pc.

“First, the existing flexibility within the rules could be used to better address the weak recovery and to make room for the cost of needed structural reforms.

Second, there is leeway to achieve a more growth-friendly composition of fiscal policies. As a start, it should be possible to lower the tax burden in a budget-neutral way. This strategy could have positive effects even in the short-term if taxes are lowered in those areas where the short-term fiscal multiplier is higher, and expenditures cut in unproductive areas,” he said.

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