Paris mounts defence of Commission’s energy tax

Date: 29/04/1999

By Tim Jones

THE French government has come to the defence of the planned EU-wide tax on energy use following a stinging attack on the proposal from Spain.

In a new paper circulated among tax negotiators, Paris argues in favour of the European Commission's current minimalist approach and questions the basis of Madrid's opposition to the tax.

Spain's approach was challenged by northern European diplomats from countries with long traditions of levying energy taxes at a meeting of EU officials this week.

They insist that even if member states did not agree to harmonise energy taxes, Madrid would have to take action of some kind because it is close to exceeding its carbon dioxide emissions allowance. “They have been allowed a bit of a clean run until now but a lot of their arguments do not stack up,” said one diplomat from a northern member state.

Under the latest Commission plan, governments would uprate minimum excise duties set for mineral oils six years ago in three stages until 2002, and extend existing minimum rates on mineral oils to coal, gas and electricity.

In a detailed position paper, the Spanish argued that this plan would hit southern countries excessively since most northern member states already set excise duties above the proposal minima. Madrid claimed that the plan would result in a 45&percent; hike in unleaded petrol duties and 24&percent; for leaded petrol in Spain.

However, other governments, including the French, insist this comparison is not fair since several northern governments would also have to raise their taxes.

Spanish officials have nevertheless confirmed that their already strong opposition to the plan has hardened even further now the euro zone has been created. Strong domestic demand has accelerated inflation in the country to an annual 2.1&percent; in March compared with the 1.0&percent; average in the euro zone.

After the European Central Bank cut interest rates from 3.0&percent; to 2.5&percent; earlier this month, the Spanish government was forced to react to the inflationary pressure on its economy with the only weapon to hand: cuts in administered prices.

Finance Minister Rodrigo Rato announced a package of measures to reduce gas, electricity and telephone charges as well as motorway tolls and prescription charges, with the aim of lopping 0.3 of a percentage point off consumer price increases this year.

” We were already worried about having to put up duties with an EU tax,” said a Spanish official. “Now, the chances are even less good.”

Earlier this month, the European Parliament approved the Commission's approach to EU-wide energy taxes at the instigation of Liberal Group leader Patrick Cox. His report included an amendment calling for duties on mineral oils to rise from €417 to €450 per 1,000 litres from 1 January 2000, with automatic index-linked increases reviewed after ten years.