Direct EU Tax Will Be Given A Thrashing Today In Brussels

by Ulrika Lomas, Tax-News.com, Brussels

10 July 2001

The direct 'eurotax' touted by the Belgian presidency will be discussed at today's Ecofin Council in Brussels, but it is expected to come in for a pasting from UK Chancellor Gordon Brown.

Belgian Prime Minister Guy Verhofstadt and Finance Minister Didier Reynders are behind the suggestion to replace the current 'share of national VAT' formula with a directly-collected tax which would, they say, help to bridge the 'democratic deficit' in the EU. Guy Verhofstadt said: "Like everyone pays their local and national taxes, you should have a direct financing system for the EU."

Most EU citizens are of course perfectly happy to be in democratic deficit vis a vis Brussels if it means not paying a tax.

More surprisingly, French Finance Minister Laurent Fabius is likely to argue against a direct tax, seen in France as a dilution of the country's treasured independence.

The suggestion is supported however by Germany's Finance Minister, Hans Eichel, and by president of the European Commission, Romano Prodi, who implausibly sees a direct tax as a way of making the EU more popular.

But at today's meeting, in Brussels, Mr Brown will make it clear that Britain sees no possibility of a new tax. The Chancellor will argue that the EU should concentrate on making Europe the world's most competitive economy by 2010.

Although direct financing of the EU might not initially mean any increase in total taxation, it would take the power to vary that part of the tax system away from national governments, and this is anathema to the British, who are determined to retain control of their fiscal veto. No-one believes that, once Brussels has the power to tax, it would be able to resist increasing its take.

British and French Treasury officials both said that the uncertain outlook for the world economy meant that economic reform, not tax harmonisation, should be the priority for the EU. Said a French official: "It is important to evaluate the EU's budget - its spending as well as its revenues - before deciding what is needed to finance it."

A British official commented: 'It's not immediately obvious that the way to increase the popularity of a particular level of government is to impose another tax.'

Recommended