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Tax incentives: low on equity, but high on employer interest

Outcomes from the Cedefop European Commission conference on tax incentives for education and training, 22 September 2009

Tax incentives are not necessarily the most equitable or even the most efficient cost-sharing schemes for vocational training.  Their real importance is that they are well appreciated by employers: despite the fact that they are a small percentage of total public expenditure on education and training, they serve to encourage private investment.

This was one of the major conclusions of the recent conference (Brussels 22 September) organised jointly by Cedefop and the European Commission (Directorates General. for Education and Culture and for Taxation and Customs Union).  

What is at stake
The pressures on public finances, on the one hand, and the need to improve the quality of training, on the other, makes it necessary to spread the financial burden: government, employers and workers should all take their share of responsibility for upskilling the labour force.  The work done in preparation for this conference aimed to reveal the effects and consequences of the various extant tax incentives (tax allowances, exemptions, credits, reliefs and deferrals). 

The downside of tax incentives
The conference questioned the efficiency of tax incentives. So-called deadweight effects the extent to which a funding mechanism covers training that would have taken place even without it are quite considerable, meaning that tax incentives do not generate much additional training.  

Moreover, unlike direct funding, they score low on equity criteria, benefitting  low-income and low-qualified people and small enterprises less than they should though some countries, such as France,  have implemented schemes targetting smaller companies.  

Combining tax incentives with other policies
Tax incentives are in effect a way for the public sector to subsidise education and training. As such, they can influence the attitudes both of business and of individuals. Stronger guidance services can help people see more clearly the benefits of training and added skills.But employer-oriented subsidies should also be accompanied by advice and guidance services, to encourage companies to invest in the skills of their workforce.  Moreover, tax policy also has a role to play in strengthening incentives for private investment in tertiary education, a theme that is likely to gain in importance in the next few years. 

What the EU can do
Both education and tax policy remain firmly in the hands of the Member States; but the EU including Cedefop can provide evidence and collect good practices, thus encouraging all stakeholders to get involved in education and training and to combine forces for the best results. 

The next cycle of the Strategic Framework for Cooperation in education and training will continue to gather relevant information and generate ideas and proposals on sustainable financing.

 

News Details

04/12/2009
Cedefop