EU plans for diesel tax hike spark fierce opposition

22.02.07 @ 17:39

  1. By Renata Goldirova

BRUSSELS - The European Commission is locked in an internal struggle over whether to raise the minimum duty on diesel fuel from 2012, with several EU capitals preparing for a similar battle, if the proposal is eventually adopted by the college of commissioners next week.

  • The controversial proposal could even freeze Lithuania's euro hopes (Photo: Notat)

EU tax commissioner László Kovács is set to table a proposal to harmonize the minimum level of excise duties at €359 per 1000 litres of diesel in 2012 and subsequently at €380 in 2014, a move which would see most EU states increasing their current rates.

According to Mr Kovács' paper – seen by EUobserver – such a rise would stamp out so-called fuel tourism, as big trucks now make detours from their routes to tank in a state where it is the cheapest, generating more greenhouse gas emissions as well as losses to some EU states' coffers.

Germans, for example, are willing to drive two to four additional kilometres for each euro cent price differential compared to a neighbouring country in the case of gas oil. Fuel tourism cost Germany €1.9 billion in 2004.

The document was scheduled for adoption in the commission by so-called written procedure last week, but due to internal opposition this quiet method was abandoned.

The issue will now be discussed by all 27 commissioners next Wednesday (28 February).

The main opposition comes from EU budget commissioner Dalia Grybauskaite, a former finance minister in Lithuania, with one official telling EUobserver that four other commissioners Charlie McCreevy (internal market), Danuta Huebner (regional policy), Siim Kallas (administrative affairs) and Viviane Reding (information society) - have by now adopted a critical stance toward Mr Kovács' proposal.

According to Mrs Grybauskaite Europe "needs to decrease minimum rates for fuel" in order to keep its economy on the up.

"Increasing excise duties would play the role of catalyst for fuel prices", she said, underlining "it is surely not our goal of today, keeping in mind a recent tendency of fuel prices".

Such comments seem to reflect the current mood in Vilnius, with one Lithuanian diplomat saying the Brussels proposal should be scrapped as it would translate into an overall increase in prices and inflation.

"It could freeze Lithuania's euro hopes", a diplomat told EUobserver, adding "taxes remain one's competitive edge and countries with high rates have taken a voluntary risk".

Excise duty represents between 30 to 60 percent of the pump price of gas oil fuel - excluding VAT – making it responsible for six to eighteen percent of the running costs of a road haulage business.

But even EU states with the highest diesel duties at the moment, such as the UK, are awaiting the outcome of the Brussels debate with interest, as the original proposal from 2002 suggested an EU-wide single rate of duties on diesel fuel, leading to full harmonization.

The current paper - to be discussed by the heads of commissioners' cabinets on Monday (26 February) – fixes only a minimum rate.

"We can live with an increase likely to be proposed now", one UK diplomat told EUobserver, as the UK excise duties exceed the levels set by EU executive body. However, London "opposes harmonization as it would harm revenues to national coffers." The diplomat also pointed to the principle of subsidiarity, according to which action should where possible be taken by the lowest competent authority.

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