After the approval of the EU Budget last week new life has once again been given to the old idea of a common EU tax. A proposal by European Commission president Jose Manuel Barroso received support from the Christian Democrat top politicians belonging to the European People’s Party (EPP).
Barroso, a member of the EPP, called for a complete review of the budget. The aim is to create a whole new structure for EU common spending. The Commission president argued that “the structure and the methods used to negotiate the budget at the moment are not good.” He is convinced that the European Union cannot continue to operate with the present system. Barroso therefore thinks it necessary to have “a systematic revision of the budget,” a revision in which there are no “restrictions or taboos.” At present the EU budget is made up of a gross national income-related contribution, revenues from customs duties, agricultural levies, fines and 1% of the VAT base.
Recently leaders of the EPP met at the castle of Meise near Brussels. At this meeting, which preceded the EU summit of 15 December, Austrian Chancellor Wolfgang Schüssel, Bavarian Prime Minister Edmund Stoiber and the leader of France’s centre-right UMP Nicolas Sarkozy all supported the idea of an EU tax. Germany’s new Chancellor Angela Merkel was also said to be open to the idea.
Karl Aiginger, the director of the Austrian Institute of Economic Research (WIFO), has called on the incoming Austrian EU presidency to launch a discussion on a common EU tax. Aiginger suggests EU taxes on international financial transactions, energy or CO2 emissions as well as on tobacco and alcohol.
The proposal to tax financial transactions is not new. It has also been proposed by the “anti-globalist” ATTAC movement. The damage that this proposal would do to the economy has been widely acknowledged. The taxation of Energy and CO2 emissions is equally harmful to the European economy, and based on the flawed ideas behind the Kyoto-protocol. Taxing alcohol and tobacco is basically an attempt by policy makers to moralise about what consumers should or should not use.
The good news is that (a) they did not suggest that the EU should be allowed to tax income, and (b) that any change to the current system of the financing of the EU budget will be hard to achieve because a number of countries, with Britain as the most outspoken, have always opposed direct EU taxes. Giving the EU the power to tax can only be agreed unanimously by member states.
Yet the proposal is still harmful because the EU does not need more taxes but less. Granting the EU the power to tax will not only lead to new taxes from the Union, but the idea of granting international organizations the power to tax may result in similar demands for other international organisations such as WTO, UN and OECD.