Opinion on Savings: lines of approach for a EU policy (94/C 393/22)

On 24 February 1994 the Economic and Social Committee, acting under the third paragraph of Article 23 of its Rules of Procedure, decided to draw up an Opinion on: Savings: lines of approach for a EU policy.

The Section for Economic, Financial and Monetary Questions, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 19 July 1994, in the light of the Report drawn up by the Rapporteur Mr Perrin-Pelletier ().

At its 318th Plenary Session (meeting of 15 September 1994) the Economic and Social Committee unanimously adopted the following Opinion.

Savings: the requirements and the current situation

1. As it develops from the stage of the 'great single market' towards 'economic and monetary union', the European Union cannot fail to recognize the importance of savings to (a) the operation of the 'market' economy, one of the cornerstones of the EU and (b) the EU's social model, which is based on high-quality work, products and services, and the freedom of the individual. Savings contribute towards the formation of private assets which provide cover against the uncertainties of life and back-up to the social protection afforded by the state in the fields of health and pensions.

2. Although mainstream economists acknowledge that there is a strict correlation between savings and investments (resources which are not consumed are put into savings, other things being equal ...), the link is becoming less and less evident in an international economy. It has to be recognized, however, that, on the basis of the available figures, there is a clear correlation in the long term between savings and investment and between investment and growth. Investment geared to groth does not, regrettably, always generate employment in the short term. This is the case with investment geared to achieving higher productivity; but although such investment sometimes destroys jobs, it is often essential in order to bring about the level of competitiveness needed to guarantee market share and therefore preserve at least some jobs. Hence the importance of savings from a structural point of view and the need for a policy on savings; a further reason for such a policy is the need to prevent the public sector deficit from absorbing both household and corporate savings.

3. From a cyclical point of view, savings represent a mobilization of resources which may play an important role in the way in which demand is spread over time, assuming that savings play their 'counter-cyclical' role to good effect. Increasing savings has a beneficial effect on interest rates for borrowers and, more indirectly, promotes the accumulation of funds not only for enterprises but also for financing large-scale works (infrastructures).

4. In building Europe, the processes of freeing capital movements, establishing an economic area without frontiers and, finally, endeavouring to achieve convergence between Member States' economies on the basis of rather strict criteria (the Maastricht criteria) all require a common approach to savings by the authorities and political decision-makers.

5. The Economic and Social Committee recommends that the EU adopt a policy on savings. In view of the highly different approaches pursued by the Member States in their policies in this field, the ESC believes that steps should be taken to harmonize and improve current practices with a view to making it possible:

- to provide better information for savers (clarity and transparency);

- to achieve efficiency, so that savings can play their economic role of promoting investment, growth, competitiveness and employment in the best possible way;

- to provide fairer treatment of tax-payers in the different Member States;

- to maintain and strengthen the confidence of savers seeking secure investments.

6. Given the level of compulsory taxation and public expenditure in the Member States (approximately 50% of GNP), savings, which are directly affected by these taxes, take on a very special importance for the individual who is endeavouring to provide for his future. This aspect is becoming more and more important in the light of expected demographic changes in the European Union, in which an ever smaller number of persons who have jobs will have to take care of an ever growing number of people who have not. This phenomenon is made more serious by the alarming level of unemployment, the structural component of which will not disappear overnight.

7. It is generally agreed that, in order to prevent inflation, improve productivity, secure once again a proper level of investment and have enough leeway to create new jobs, there is a need to contain the increase in all forms of income growth and the cost of labour, within the framework of measures to achieve economic revival. This may represent a constraint, especially for workers. The encouragement of savings may help to relax this requirement to a certain extent.

8. The European Union and its Member States need voluntary savings - be they 'collective' savings (State savings and corporate savings) or household savings - not only to stimulate their own economies but also to help boost the industries of non-EU countries, principally eastern European countries and developing countries.

9. The ESC notes that the level of savings in the European Union has fallen from some 25% of GNP in the period 1960 to 1973 to 20% of GNP at the beginning of the 1990s. It also notes that the level of savings differs quite markedly from one country to another and points out that the level of private savings has remained relatively stable - with the trend in corporate savings being more satisfactory than that in household savings. Since the 'qualty' of savings is just as important as their volume, the ESC also notes that the way in which savings are allocated is far from optimal; direct long-term investment in productive industry is frequently rejected in favour of short-term investments which are considered to be free of risk. Furthermore, public savings are declining because of the alarming increase in deficits.

10. It is thus important for the EU to encourage all measures to promote savings, so as to meet the considerable needs which exist and lay the foundations for future prosperity.

11. The EU should, however, also take steps to avoid a situation whereby the savings of its citizens and enterprises are drawn to non-EU countries - solely on grounds of tax considerations. This risk is all the greater in cases where savings' terms place savers at a disadvantage or are less attractive than those applied by other countries.

12. Despite the bilateral agreements between several of its Member States and the efforts made by the EU itself, cases of double taxation of income from savings still occur in the EU. This is an aberration in the single market; it discourages capital movement and is unfair.

Guidelines for a savings policy

13. An EU savings policy must of course be geared to meeting the needs of savers, who want, above all, to have security for their savings. An EU savings policy must also take account of a number of constraints which are primarily of a budgetary nature but are also a consequence of the relative rigidity of behaviour patterns and regulations. Furthermore, this area largely comes within the remit of the Member States by virtue of the principle of subsidiarity.

14. A degree of convergence in the EU is, however, essential, especially as the EU is endeavouring to bring about harmonization in the monetary and budgetary fields and, albeit with greater difficulty, in the field of taxation.

15. Public saving clearly comes directly under the remit of the Treaty on European Union (Maastricht convergence criteria) and the need for a common approach therefore seems to be selfevident. There is a lack of knowledge about patterns of private savings, however, and this would justify an in-depth study. The ESC considers that the Commission should carry out (or have carried out) a comparative study of savings patterns in the Member States or even promote the establishment of a lightly-manned organization to gather more detailed data on savings across the board and carry out the attendant studies.

16. A savings policy should at all events give priority to stimulating saving for house purchase or retirement. Both of these forms of savings have the advantage of being medium- or long-term savings.

16.1. In order to promote access to housing and safeguard the housing stock in urban and rural areas, arrangements to help people buy their own property could be improved and supplemented in the light of the situation prevailing in the individual Member States. Steps should also be taken to prevent landlords of rented property from being penalized by the tax system. In some countries, such as France, action should also be taken to remedy the situation arising as a result of excessive conveyance duties which have a deterrent effect on property purchases and on labour-market mobility.

16.2. There is a growing desire on the part of households in the EU to make additional provision for retirement. More widespread use of pension funds involving the ploughing back of profits should be advocated. These could be administered by the social partners. Such funds have both an economic dimension (they involve long-term investments) and a social dimension (they address the concerns of large sections of the population).

16.3. The current life-assurance schemes, which have rightly become popular, should not be affected by the above proposal. Furthermore, 'popular' savings schemes which are aimed at the least well-off and are therefore exempt from taxation, should continue to be promoted. Incentives,such as company profit-sharing schemes or share-acquisition plans, should be encouraged by means of appropriate measures. Young people should also be encouraged to save; special measures have already been introduced in various countries to promote this goal.

17. Neutral taxation representing, as it were, a 'most favoured savings' clause, should be applied throughout the European Union to savings in the form of investment in shares, which provide businesses with equity capital but which, in the short term, involve a greater risk that investors may make a loss. To give an example, in cases where a given country makes fixed-income investments subject to a tax which constitutes payment in full discharge, the same arrangement should also apply to shares.

18. The European Union should also set itself the following objectives:

- the promotion of (a) self-financing by SMEs and (b) access by SMEs to the financial market in order to prevent them from remaining on the sidelines of the 'savings highways';

- the introduction of machinery for providing equity capital through the intermediary of venture-capital companies;

- more effective channelling of private savings into the development of major infrastructure projects.

19. The use of the ECU, pending the introduction of the single currency, may quickly take on an important role in the policy on savings and the organization of the financial markets (). Proposals have at the same time been put forward for tackling the excessive fragmentation of the financial markets. These proposals should be accepted.

20. Approximation of taxes on savings applied by the various states remains a key element of savings policy. The first requirement is to introduce the necessary conditions at EU level to prevent double taxation of cross-frontier dividend payments. Secondly, the studies on the establishment of a generally applicable system of withholding tax should be continued; this system should cover the largestpossible number of countries and should be applied, in particular, in the OECD States. If a flight of capital is to be avoided, the level of the tax under such a system should not be too high.

21. Conclusions: savings represent the linchpin of a strategy for growth

21.1. The Report of the Section for Economic, Financial and Monetary Questions attached to this Opinion includes a stocktaking and an analysis which indicates that savings requirements are higher than is generally imagined. Europe's competitiveness and its ability to maintain and create jobs largely depends on bringing about an increase in savings.

21.2. The current level of savings is thus inadequate. Although the level of public savings, which is currently declining because of the indebtedness of the public sector, is subject to constraints - the impact of which cannot be reduced simply by improving the economy and which could only be eased by carrying out necessary structural reforms relating to budgetary expenses - it would be a mistake to focus attention exclusively on this aspect of the situation.

21.3. Private savings must be stimulated; it is especially necessary to encourage corporate savings in order to increase the vital investment capacity of enterprises. There is also a need to promote household savings, the level of which has dropped to an excessive degree in recent years.

21.4. In the medium and long-term there is a need not only to increase the volume of savings but also to bring about stability in the level of savings and give priority to channelling savings towards the equity capital of enterprises, and more generally, towards productive industry. More widespread use of pension funds, as a back-up to the standard systems of paying pensions from current contributions, is one of the ways in which these goals can most effectively be attained, the sustainability of this latter system must also be assured.

21.5. Furthermore, Europe must endeavour to make itself more attractiveto international investors and remove, as far as possible, the remaining barriers to freedom of movement of capital within the European Union.

21.6. It is likely that there will continue to be spontaneous harmonization of the taxes on savings levied by the different Member States. Steps should, however, be taken to promote this trend and the difficulties of implementing a withholding tax system throughout the EU must not be allowed to detract from the objective of completing the internal market and making it more effective.

21.7. The issue at stake here is so important that it is more desirable than ever to promote a) all measures which may lead to an increase in savings and, especially, savings based on long-term contracts and b) moves to make taxes on savings simpler, more consistent, less subject to change and able to provide a greater incentive to save.

Done at Brussels, 15 September 1994.

The President

of the Economic and Social Committee

Susanne TIEMANN

() CES 689/94 fin.

() See ESC Opinion on the Commission's White Paper entitled: Removing the legal obstacles to the use of the ECU (OJ No C 133 of 16. 5. 1994).