Energy tax plan appears doomed

Date: 20/03/1997

By Michael Mann

A PLAN to extend minimum tax rates to the full range of energy products looks likely to suffer the same fate as its predecessor, the proposed tax on carbon dioxide emissions which was abandoned because of overwhelming resistance from EU governments.

“I have to say I am sceptical about whether this idea will fly. It will probably suffer the same fate as the CO2 tax. There are a number of key countries already coming out against it,” said one Council of Ministers official.

Even before Union diplomats begin discussing the nitty-gritty of the proposal, four governments declared their opposition to Taxation Commissioner Mario Monti's brainchild at a meeting of EU finance ministers this week.

“Spain and Greece were the most negative. Luxembourg spoke about the impact the new taxes would have on inflation and EU competitiveness. The UK also had problems, but we were surprised that it was not completely negative,” said a European Commission official, even though British Finance Minister Kenneth Clarke claimed his government would not hesitate to use its veto “if these proposals stay in their present form”.

Spanish and Greek opposition is not surprising given that they are the only countries which would actually have to increase basic tax rates if the plan became law.

But the resistance by so many countries to a proposal requiring unanimity does not bode well. The Commission is, however, playing up the positive response it felt it received from nine member states. Denmark in particular, among the northerners, pleased Monti by opening the debate with the warmest reaction of all. Sweden, Italy, Belgium and Portugal also reacted favourably to the outline of the plan.

As usual on energy questions, France took a fairly unique stance, because of a much higher dependence than its partners on the nuclear sector.

Commission sources believe Germany and Austria were happy with the basic approach, although there were suggestions that Bonn was motivated by the recognition that the revenue raised would be a useful tool in its efforts to reach the Maastricht convergence criteria for economic and monetary union.

In launching his initiative, Monti stressed that greater tax revenue from the energy sector would allow the reduction of “compulsory levies on labour, thereby helping to cut unemployment”.

But some were sceptical. “Many people suggested the plan was not terribly well thought through. There is no evidence that reducing labour costs would necessarily generate more jobs than would be destroyed by higher taxation elsewhere,” said one member state official.

This will be one of the issues for discussion when specialist working groups get their teeth into the proposals over the coming weeks. Doubts remain whether this should be left to taxation experts, or whether energy and environmental specialists should also be allowed to give their views.

The Dutch government is keen to chair substantive discussions on the question before its turn at the EU's helm runs out at the end of June. But they are unlikely to take place before May at the earliest.

While the Commission describes itself as “quite positive and more confident than we expected”, Council of Ministers officials suggested the debate “would reflect the basic positions in previous discussions on carbon taxes”.

Meanwhile, the Green Group in the European Parliament this week launched wide-ranging plans to 'green' the European economy, including a minimum tax on non-renewable energy of 1.4 ecu per giga-joule energy content and 18.7 ecu per tonne of CO2 emitted.

The Greens are also calling for an additional levy on nuclear power - which they describe as “the most dangerous energy source”.