EU-wide taxation proposal to face fierce resistance

Date: 03/04/03

By Dana Spinant

CONTROVERSIAL plans to introduce an EU-wide tax paid directly by all citizens will be back on the agenda when the Convention discusses the future financing of the Union today (3 April).

Members will also try to settle the tricky question of whether the European Parliament or Council of Ministers should have the final say over adoption of the EU budget - amid widespread agreement that the current arcane method of each institution having the last word over half of the budget should be scrapped.

But it is the issue of an EU tax - a taboo subject for many government leaders and Convention members - that is likely to hog the limelight.

The European Commission wants to replace the present system of financing the Union - a complicated aggregate of customs duties, agricultural levies, VAT and member state contributions - with what it terms "genuine own resources".

Michaele Schreyer, the budget commissioner, favours funding via an indirect tax. This could be a proportion of VAT or, perhaps, an energy tax.

"We are not seeking new revenues, but a restructuring of revenues," she explained, adding: "Citizens already pay for the EU - policies don't grow on trees."

The idea of an EU tax is unpopular in the UK, Denmark and Sweden: the trio regards the levying of taxes as sacrosanct for member states.

"This is rather hypocritical," a Convention official said. "We all know people pay for the EU. Why pretend that they only pay to their [national] capital? They [member states] fear, of course, that an EU tax would create a powerful symbol: a contract between people and the EU."

The Convention must reach agreement only on the principles for financing the Union, not the 'modalities', which will be spelled-out at a later stage in an 'own resources decision'. However, the procedure for adopting this decision, which currently requires unanimous agreement in the Council of Ministers as well as ratification by all national parliaments, is now in question.

It is feared that in an enlarged EU there will be a high risk of blockage.

"If we keep the present procedure we can already foresee a huge budgetary crisis in 2007, as it is highly probable that at least one or two national parliaments would block the decision," a Convention official said.

But it is beyond doubt that member states' parliaments must be involved in the adoption of this decision, as traditionally parliaments approve taxes.

One Convention insider suggests a Congress of European peoples, gathering members of the European Parliament and national parliamentarians, should be in charge of approving the decision.

Such a Congress, an idea backed by Convention chairman Valéry Giscard d'Estaing, would represent the best way of involving national parliaments without allowing each to block the decision, the Frenchman argues.

However, the idea of a Congress has been attacked in the Convention by both those who are against new institutions and those seeing a Congress as a way of diminishing the powers of the European Parliament.

The Commission admits that "national parliaments must be associated with this procedure although not necessarily through the ratification procedure".

Another controversial issue is the procedure for adopting the Union's annual budget. Amid general agreement, the present procedure needs to be simplified by abolishing the distinction between 'obligatory' and 'non-obligatory expenditure'. The key question is which institution will have the last word over the EU budget.

At present, the Council of Ministers has the final say over the obligatory expenditure and the European Parliament over the non-obligatory part.

According to the Commission, once this division is abolished, Parliament should have the final word on the overall budget. However, its room for manoeuvre would be limited by binding ceilings for budget increases (the financial perspectives).

The proposal is expected to enjoy support from MEPs, but is set to meet resistance from member states.

Controversial plans to introduce an EU-wide tax paid directly by all citizens will be back on the agenda when the Convention discusses the future financing of the European Union on 3 April 2003.