Spain slams plans for EU energy tax

Date: 08/04/1999

By Tim Jones

THE prospects of breaking the seven-year log-jam over EU-wide energy taxation are looking even bleaker as Spanish opposition to the proposals hardens.

Madrid has sent a damning position paper to other Union governments claiming that the European Commission's proposals for an EU tax on energy consumption are fundamentally flawed and discriminate against southern member states.

" The Commission seems to share the view that taxes must rise at all costs and that it is therefore to put pressure on member states with lower tax rates so as to force them into a vicious circle of tax and price increases," states the Spanish paper.

The move comes hard on the heels of Madrid's condemnation of the plan at a meeting of EU finance ministers in December.

Since tax measures must be approved by all 15 member states, Spain's tough line not only threatens to block progress on the energy levy but also scupper hopes of getting a package deal which would include harmonised taxes on company profits and savings.

Under the latest version of the Commission's proposals, member states would extend existing minimum rates of excise duty on mineral oils to other products, including electricity, coal and natural gas.

At the same time, minimum rates for mineral oils set six years ago would be uprated in three phases until 2002 to take account of inflation since 1993 and add a real increase in tax.

Madrid's paper attacks the very foundations of this proposal, claiming it would raise excise duties in Spain by 45% for environmentally-friendly unleaded petrol, by 26% for diesel and by 24% for leaded petrol.

The Commission argues that excise duties on energy have fallen in real terms since minimum rates were set in 1993 in several countries, including Spain.

But Madrid claims that, even when inflation is taken into account, rates for unleaded petrol would rise by 25%, for diesel by 9% and for leaded gasoline by 6%.

The paper dismisses the Commission's assumption that any increases in excise duties would be offset by a parallel, automatic cut in companies' contributions to their employees' social security fund.

" It is inappropriate to oblige a member state to modify its social security financing system indirectly by adopting a Community framework for the taxation of energy products," it insists.

Once this assumption is taken out of the equation, adds the paper, it is "possible to discern the full magnitude of the sacrifice" being demanded from Spain and some other member states.

Since several northern EU countries already have excise duties well above the minima suggested by the Commission, the legislation would mean that the only rates to rise would be in southern countries such as Spain.

Yet, the paper argues, Spanish consumers and businesses are already contributing more per head to energy taxes than their counterparts in France and Germany.

The tax-take measured against gross domestic product shows that the Spanish pay only 1.71% of GDP on mineral oils duties, below the EU average of 1.90%.

However, the Spanish say this measure should take account of per-capita income, which shows that the burden in Spain is 2.19% of GDP, compared with 1.56% in Germany and 1.63% in France.

" The member states which are supposed to have the highest rates of tax in absolute terms are those which have the lower rates of tax in terms of their citizens' purchasing power to pay them," states the paper.

In a bid to come to some agreement on the most difficult parts of the energy tax proposal before it hands over the presidency of the Union to Finland in July, Germany has suggested giving Spain, Greece and Portugal longer than other member states to phase in higher duties on oils and coal.