EU-tax back on the agenda

Today's FT Deutschland splash reveals that EU Budget Commissioner Janusz Lewandowski will in September table different options for introducing an EU tax to fund the bloc's budget. Apparently, Mr. Lewandowski believes that the current drive in Europe to cut spending is making governments more receptive to the idea of a single tax.

He said,

Many countries want to be unburdened. In this way, the door has been opened to think about revenues that are not claimed by finance ministers...If the EU had more of its own revenues, then transfers from national budgets could be reduced. I hear from several capitals, including important ones like Berlin, that they would like to reduce their contribution.

The thinking is that if the Commission raised its own taxes, then the burden on member states' budgets would be reduced, and member states would pay 'less' to the EU.

This logic is of course fundamentally twisted as the burden on taxpayers - which surely is what matters in the end - would be exactly the same. Only thing that would change is the layer of government that raises the taxes. The Commission is effectively trying to play on governments' desire to be seen as cutting spending as a pretext to concentrate taxation powers in Brussels. The views of taxpayers - the folks who will actually pay for this - are simply ignored.

Pretty disingenuous.

According to Lewandowski, possible sources of an EU tax include a financial transaction tax, levies involving the Emissions Trading Scheme and/or a levy on air travel. EUobserver reports that the Commission hopes that a deal on an EU-tax can be reached during the Danish Presidency in 2012.

Unsurprisingly, Lewandowski's comments have already provoked pretty strong reactions, with German Finance Ministry spokesman Tobias Romeis telling reporters in Berlin that, "Calls to introduce an EU-tax are in opposition to the position the government established in its coalition treaty, in which it says that we will deny an EU tax or EU involvement in national taxes."

So the German coalition government says it will oppose an EU tax, but what about the British one?

This would seem like an obvious one for the Coalition to squash given that it represents a massive step towards a federal Europe. But you can also see the temptation.

A direct EU tax on, say, financial transactions or travel is easier to 'hide' than a line in the annual budget. The problem is that the UK's contribution to the EU is going up all the time - despite the almost universal belief in Britain that the EU budget is exceptionally poor value for taxpayers' money. The UK's net contribution is projected to rise to £10.3 billion in 2014/15 (according to the Coalition's June budget), meaning that in a decade, the UK's net contribution has increased by around 230%.


This continuous increase has become a bi-annual embarrassment, which any UK government would like to put an end to (particularly when everyone is talking austerity). Creating an arrangement under which the UK's EU contribution actually doesn't show up in the budget would do the trick.

In the end, though, it's very unlikely that the Coalition would be able to pull it off even if it wanted to - particularly as it has to get around its pledge to hold a referendum on transferring powers to the EU. And let's remember, most of Cameron's Cabinet genuinely don't want an EU-tax for a range of reasons, including ones relating to ideology and democracy.

This debate will most certainly drag on.