EU cannot be serious

Speaking to the European Parliament just before Christmas, the Austrian
chancellor Wolfgang Schüssel promoted an idea that has floated around the
European Union for years, thus far without making any headway – an ‘EU tax’.

This would be paid, as usual, to national revenue or customs organisations,
but proceeds would be earmarked for Brussels. Schüssel suggested a new tax might
be levied on investors’ short-term profits or on international travel.

Although he gave no further details, the idea has sparked more than the usual
interest in such musings and there is a good reason – the protracted agony over
setting the 2007-13 budget.

Giving the EU some guaranteed income would help take the sting out of these
difficult discussions, so the theory goes. As a result, member states have
agreed that proposals to reform the EU’s ‘own resources’ system, through which
national governments send money to EU budgets, will be part of an agreed review
of financing in 2008.

The European Commission is preparing for this debate, but is being careful in
this most diplomatically sensitive of areas. Budget commissioner Dalia
Grybauskaitë says in the (European) Parliament Magazine: ‘We cannot allow
ourselves to make the same mistake as with the services directive. We let the
question become highly politicised; we frightened people. And finally, what we
have is a weakened compromise. We should avoid such a future.’

And the stakes are indeed high. Many EU governments (especially Britain) are
worried that an EU tax, once installed and in operation, might be the thin end
of the wedge, a forerunner of harmonised taxation system and rates throughout
the 25 EU member states.

The Austrian presidency confirmed talks would start when the 2008/09 budget
is discussed, probably towards the end of 2007. Under the recently agreed
medium-term budget deal for 2007-13, ‘there is the possibility of introducing an
EU tax which would be fiscally neutral – it would not raise additional money’,
says a Vienna spokesman.

‘We think the idea will get greater backing from the EU council of ministers
within the next few years.’

Echoing her commissioner’s warnings about political sensibilities, EU budget
spokeswoman Maria Assimakopoulpou said the EC would try to avoid leaving its
fingerprints on such proposals.

The commission had not taken any new position since its report of July 2004
in which it outlined three candidates for an ‘EU tax’, she notes. The three
relate to energy consumption, VAT and corporate income and if Brussels had its
way, the EU would start to receive revenue from these sources in 2014.

But pressure will come from the European Parliament. One of the most tireless
crusaders for an EU tax is the French MEP (from President Chirac’s UMP party)
Alain Lamassoure, of the budgets committee.

Lamassoure is taking soundings in all 25 EU national parliaments and will
present a report in the autumn. In a working paper, he argues a dedicated energy
tax based on road transport fuel would be technically possible in around three
and six years, and would be relatively simple to administer and finance half of
the EU budget, even with rates half current minimums.

A VAT-based tax could be ready in six years and at 1% would cover about half
the EU budget. Finally a corporate income based tax could be created, although
this ‘would need a common consolidated tax base with a minimum tax rate instead
of 25 separate national tax systems and a multiplicity of tax laws, conventions
and practices’. Less than a quarter of its revenue would need to be assigned to
the EU.

‘Generally speaking it’s going too far to say there’s a majority in favour of
this approach,’ says Jean-Yves Loog, budgets committee spokesman. ‘Perhaps it
may involve 50 to 60 out of 732 members so it’s not a problem for most members,’
he argues.

The main problem could be persuading the UK government to yield over an area
that requires unanimity among EU member states to proceed. ‘Taxation is a matter
for individual states. An EU tax would be deeply unpopular and would undermine
democratic legitimacy,’ says a Treasury spokesman. Nor would Britain be alone.

‘The general mood in the EU is probably that this is not something that
anybody is seriously considering,’ he claims.

And if the EU tax led to calls for tax harmonisation then Britain would be
even more resistant. ‘We think that fair tax competition is the best way forward
if we want to be competitive. We don’t think it is an answer to the challenge of

globalisation, or to the rise of Asian or Latin American markets. We need
more tax competition, not less.’

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