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29th Mar 2024

Too early for EU tax, says budget commissioner

  • The Lithuanian commissioner says the EU is not integrated enough for a common tax. (Photo: European Commission)

The EU needs a new system of financing its policies, without exceptions such as the UK rebate from the common budget. But it is not ready to introduce a European tax, argues budget commissioner Dalia Grybauskaite.

In an interview with EUobserver, the Lithuanian commissioner said the EU executive is planning to launch a public debate in mid-2007 on what future EU priorities will be financed from its common coffers which will be summed up in a "highly political" paper by the commission in late 2008.

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She herself is an advocate of a radical financial overhaul, arguing that "the reforms made before the 2004 enlargement - especially on the CAP [common agriculture policy] - were not sufficient."

Part of the budgetary review package should be a new formula on how to calculate the contributions by individual member states - as the current system causes rifts such as the recent row among member states on the EU's financial plan for 2007 to 2013.

The commissioner argues that any new "own resources system" - where Brussels raises money directly - should be "simple and very transparent." The new budget structure should also reflect the prosperity of member states and clear away distorting exceptions.

UK rebate politically incorrect

One such distortion in the current system is the UK rebate - an annual discount on Britain's EU membership fee dating back to 1984.

"We all pay payments and fees for the UN and nobody questions it; so why in the EU which is a voluntary organisation which we all wanted to join and [for which] we all negotiated the formula defining how it is supposed to be financed, some countries ask to have their money returned back?" Ms Grybauskaite asked rhetorically.

"It is politically incorrect and neither financially nor economically grounded," she said, stressing that the budget itself is however only a tool for carrying out policies and it should primarily reflect the agreement on Europe's new priorities.

Europe not ready for common taxes

One way of changing the EU's financial system - supported by some in the European Parliament - would be introducing its own tax to replace member states' donations.

The idea came up several times after the bitter budgetary talks both in 2005 and previously in 1999, with for example senior French centre-right MEP Alain Lamassoure suggesting that the EU could levy a tax on SMS and email messages.

But Mrs Grybauskaite is "cautious" about the EU tax issue.

"Any tax system is based on institutional and economic integration. Only if we deepen and finalise our internal market, some new taxes will be appearing and very objectively so. But any type of tax system can't be more progressive than the basis for it."

She explained that while some member states function as federations and can impose federal taxes "the EU is not a federation, it does not have a federal government and our integration is going differently."

Let's not table unrealistic bills

As an ex-finance minister, Ms Grybauskaite is also wary of the commission's own latest proposals on taxes, especially the fast track approach on a common company tax base and a hike in diesel tax.

While she thinks the idea of the common tax base in itself is positive, she does not think that the EU will be ready to go ahead with it as early as next year – as suggested by tax commissioner Laszlo Kovacs - as the union's integration is not deep enough and the plan faces fierce opposition by at least five countries, particularly Britain.

Mrs Grybauskaite argues the EU executive should be more pragmatic about its proposals and take into account positions of member states and industries in advance, rather than push for bills that are not going to get through in the council [representing the national governments].

Against ecological populism

A disputed hike in diesel tax - set to be adopted by the commission next week - could see a similar fate, as it would force 21 EU countries to raise their rates of excise duties on fuels leading to higher prices which could cost European consumers €35.6 billion.

"I'm against proposals which do not have macroeconomic assessment and are not fitting into our overall taxation strategy," said the Lithuanian commissioner, adding that the move could cause a rise in inflation and consequently a delay of eurozone entry for some new member states.

The advocates of the diesel tax hike say it would stamp out so-called fuel tourism, as big trucks now make detours from their routes to tank in a state where fuel is cheapest, generating more greenhouse gas emissions.

But Mrs Grybauskaite disagrees, saying "I'm against ecological populism which now has become very modern and everything you want to push through you highlight by referring to ecological influence."

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