European Union in Turmoil Over Green Fuel Taxes

LUXEMBOURG, September 21, 2000 (ENS) - Europe's fuel tax crisis has created splits between European Union member nations. The Swedish government yesterday underlined the seriousness of its long term green tax intentions, brushing aside fuel tax protests to propose a further rise in diesel duty in its 2001 budget.

But France cemented its position as Europe's least steadfast supporter of high fuel taxes, yesterday offering a further significant fuel tax cut to all road users to ease the pressure of high oil prices.

In his 2001 budget proposal, French Finance Minister Laurent Fabius announced a seven percent reduction in petrol and diesel fuel duty - lowering the tax two percentage points more than the government promised at the end of August. Fabius also said that the cut would take effect on October 1 rather than 21 January 21 next year.


French Finance Minister Laurent Fabius (Photo courtesy Government of France)
For domestic heating oil and gas oil, which is fuel for farm machinery, the French tax cut took effect today. The reduction is in addition to a separate 30 percent cut in duty for these fuels announced at the end of August.

The French government's move on fuel duty has been denounced as inadequate by centre-right opposition parties and the national motorists association, but supported by Green Environment Minister Dominique Voynet.

Voynet's support hinges on the temporary nature of the fuel tax reduction. Under a new "floating" system of fuel taxation, fuel duty should rise when crude oil prices are low and drop when they rise. Adjustments will be possible every two months.

The cut in duty follows several other concessions to fuel tax protesters announced at the end of August. They include a one-year freeze in the seven-year diesel tax escalator, with a two-year freeze for road hauliers, plus abolition of annual road tax for private motorists from November 1.

The government expects to make up some of the fuel tax revenue it is losing by subjecting oil firms to a one-off supplementary charge. Announced by Fabius in August, the plan was confirmed yesterday but has yet to be formally presented. The scale of the charge has not been decided, but the finance ministry has said that a 20 percent exceptional charge on company profits arising from higher crude oil prices is possible.

In terms of public spending, the 2001 budget proposal is a good one for the French environment ministry, which will be given one of the largest gross budgetary rises, at 9.2 percent.

But in Sweden the fuel tax increase announced Wednesday will push up diesel prices - already the second highest in the EU after those in Britain - by three percent.

Swedish hauliers, who have been blockading major ports for several days, were angered by the move. Even so, the government appears to have placated protesters by promising inquiries into taxation of the haulage and farming industries. Blockades were disappearing this morning.


Stockholm taxi (Photo courtesy City of Stockholm)
Billed as year one in Sweden's ten year ecological tax reform, next year's budget includes a total increase in environmental taxation of about 10 percent of the final green tax target. The government is committed to cutting employment taxes as environmental ones go up. Income taxes are set to fall next year.

In addition to higher diesel duty, the budget proposal includes a 15 percent increase in an Sweden's carbon dioxide emissions tax and an increase in the electricity tax. Sales tax (VAT) on public transport is to be halved from 12 to six percent, while spending on environmental research and rehabilitation is to increase.

But the differing directions of European Union countries on the contentious fuel tax issue has disrupted the harmony of the Union.

Anger flared at an extraordinary meeting of European Union transport ministers called in Luxembourg yesterday to debate the impact of oil prices on transport policy.

Germany's Transport Minister Reinhard Klimmt heavily criticised his French counterpart Jean-Claude Gayssot for climbing down over fuel taxes just days after European Union finance ministers had agreed not to give way.


German Transport Minister Reinhard Klimmt (Photo courtesy Government of Germany)
Klimmt said that the "wild cuts" made by some member states would only "distort competition...more."

He singled out France for his strongest reproach, attacking Gayssot for "going it alone" and warning the French government against starting a "a downward spiral of taxes."

The German minister said France could not "simply ignore" the finance ministers' agreement to hold firm on fuel tax.

European Union Transport Commissioner Loyola de Palacio warned that fiscal compromises would give the wrong signal to oil producing states.

In a related development, The European Commission announced yesterday that tax concessions made by France, Belgium, the Netherlands and Italy this week are to be investigated to ensure that they comply with European Union aid rules. The member states have a month to provide details of their subsidies.