Belgium Proposes Tax On Savings To Finance European Union

Jeremy Hetherington-Gore, Tax-News.com

16 March 2001

Belgium takes over the presidency of the EU in July, and as one of the original members of the EEC it can be relied upon to push the 'superstate' agenda for all it's worth. Also, with Brussels being the home of the Commission, there will be unusually close co-operation between the administration of the presidency and that of the EU.

Various tired old federalist war-horses will therefore be trotted out to general shock and surprise before being ritually slaughtered in the Council by a sharp (usually British) veto.

Yesterday saw the emergence of one of these war-horses when the Budget Commissioner Michaele Schreyer (a Green German academic and politician who wrote about fiscal federalism in her PhD thesis) warmly approved a Belgian proposal to finance the EU with a savings tax.

The EU is due to reform its 'own-finance' structure in order to make the present obscure muddle of VAT contributions and levies more transparent. But it takes world-class obstinacy of purpose or simple boneheadedness to suppose that a savings tax stands any chance of success, just months after the EU legislative process came to grief at the Feira summit over the harmonised withholding tax (savings tax) proposals contained in the 1996 taxation directive.

The Belgian plan is to replace current financing arrangements either with a tax on the interest made on savings held in banks and building societies or an "environmental tax" on petrol, gas and electricity. A common income tax has been ruled out because the regimes in the 15-member states are too varied.

Incredibly, the preference in Brussels is for the savings tax solution. Ms Schreyer told the Independent newspaper that the European Commission may press for the idea to be discussed at a summit of EU leaders in December. She told The Independent: "Our policy is to be more transparent and improve the dialogue with the public. We are obliged to make a report, at the latest by 2004 on own resources [the EU's revenue]. At the European level you would have the right to decide a tax - not taxes in general, but one tax."

Predictably, the UK Treasury immediately said that Britain would veto any such plan, and Michael Portillo, Opposition Treasury spokesman, said the idea was scandalous: "The EU has no right to levy a direct tax on the savings of UK households," he said. A gift from the Gods, indeed.

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