How can policymakers retain Europe’s status as a sustainability leader?
- Release funding for sustainability projects: Just 42% of surveyed executives say that Europe outperforms other regions on the level of funding for sustainability projects.
- Balance environmental regulation with ease of doing business: Policymakers will need to be careful that any new regulation does not stifle business activity and impede Europe’s other strategic ambitions.
8. Boost workforce productivity and promote Europe’s critical skills
The presence of a highly skilled workforce is a major factor in determining where businesses locate operations. When we asked businesses that are planning to invest in Europe this year about their motivations, “access skills” came second only to “reduce costs.” And investors ranked “skills and availability of the workforce” fourth in a list of 15 factors influencing where they invest.
Europe is doing well here. For example, 62% of investors say that Europe outperforms competitors on the availability of technology skills such as science, engineering and data analysis. But it cannot be complacent. Reports by the European Centre for the Development of Vocational Training and the European Labour Authority show that the continent has shortages of specific skills in the health care, software, construction, hospitality and engineering sectors.
The EU has made a start, with initiatives to fill future skills gaps that include its Pact for Skills and the Skills and Talent Mobility package. It is vital that policymakers, businesses and academic institutions continue to collaborate to identify the types of skills that businesses need in the future.
9. Balance tax competitiveness and revenue growth
European governments are attempting to raise revenue for increased expenditure while maintaining competitive tax rates. That is a difficult balancing act.
Tax is only one of many factors that influence where businesses locate their operations, but authorities should resist draconian measures that could harm Europe’s attractiveness. Investors in the survey say that tax authorities’ flexibility and pragmatism is one of the most important tax-related factors influencing where they invest. In particular, they value cooperative compliance processes and help with discovering and understanding local rules.
Europe’s introduction of a 15% global minimum tax on companies with more than €750 million in revenue will inevitably see jurisdictions compete to find new ways of offering tax breaks to companies. Countries such as Ireland, Luxembourg and Switzerland, which historically had lower rates of corporation tax, are signed up to the new rate. But the position of other major economies such as the US is less clear, which could give them an advantage — particularly if a Trump administration opts out.
Although the revenue implications of the global minimum tax remain to be seen, experts expect the reforms to shift tax competition between jurisdictions to credits, grants and subsidies. Last year, the OECD confirmed that it will provide more favorable treatment for certain tax credits such as those contained in the US’s Inflation Reduction Act.
