Europe-wide income tax plan plunges EU summit into confusion
By Toby Helm in Pörtschach, Austria
<Picture: EuroNet>
<Picture>
<Picture><Picture>
THE European Union summit was plunged into controversy last night after the head of the European Parliament called for an EU-wide income tax that would wipe out Britain's £2 billion annual rebate from the Brussels budget.
The proposal, by José María Gil-Robles, the parliament's Spanish president, reflects pressure in Europe to create harmonised EU tax systems as the community expands and the single currency, the euro, comes into being.
In a separate development, there were signs of division among EU leaders over whether to loosen the spending rules for single-currency countries in order to allow "Euroland" governments to fund Keynesian-style investment projects.
Mr Gil-Robles said the best way to resolve arguments over how much member states paid into the EU budget would be to replace the current funding system known as "own resources" with a direct tax based on wealth and payable by all EU taxpayers.
The present system involves complex formulas, with VAT receipts, Customs levies, import duties and national wealth. Mr Gil-Robles told the 15 EU leaders: "We should create an 'own resource' for the Union in the form of a direct income tax, independent of nationality. This would be incorporated into national income and capital taxes and would not have to entail any increase in the overall tax burden. . . This would put an end, once and for all, to the debate over the national contributions."
He had earlier attacked the British rebate and the tactics used by Lady Thatcher to secure it in the early Eighties, when she famously demanded "my money back".
Mr Gil-Robles told Austria's Kurier newspaper: "The worst solution in the whole net contributor debate is the demand, 'I want my money back.' "
His tax plan took British officials by surprise. They said that Tony Blair - who has called for "fresh thinking" on Europe's future and for consideration to be given to a new defence role for the EU - would listen to the president's ideas. In private, however, they made clear that the plans stood no chance of gaining British support. Later, the Prime Minister indicated that Britain would not be the only country that would oppose Mr Gil-Robles's plan, and he insisted that the British rebate would stay.
Other countries, however, including Spain, were said to be more enthusiastic. Madrid believes that a European tax would hit it less hard than other proposals for reforming the EU budget system that are now on the table. These include returning part of the Common Agricultural Policy budget to national governments to distribute.
Spain has threatened to block any such change to the CAP, which, it says, would cause massive increases in its bills for subsidising farmers.
Britain has made clear that it will veto any attempt to end its rebate. But it is under strong pressure to change its stance from Germany, Sweden, Holland and Austria, who all say they are now paying far too much into the EU's £65 billion-a-year budget and want their own money-back deals.
The issue has placed Britain in an awkward position as it is a strong supporter of EU expansion into central and eastern Europe. Its partners are accusing it of hypocrisy for refusing to discuss the rebate, which would dramatically cut the British contribution to the costs of enlargement.
As the summit opened, Viktor Klima, the Chancellor of Austria, which holds the EU presidency, said they should forge ahead with further integration. Vienna has made tax harmonisation a priority of its six months at the helm.
"A signal must be sent from Pörtschach that a single market and a single currency is not the end of the EU journey," said Mr Klima.
The Pörtschach meeting - the first to be attended by the new German Chancellor, Gerhard Schröder, and Massimo D'Alema, the former Communist who is now Italy's prime minister - was called to find ways to make the EU more relevant to its citizens.
The main issues on the agenda were the EU's role in foreign affairs crises, such as that in Kosovo, and Europe's response to the world economic crisis in the run-up to the New Year launch of the euro.
Discussion of Europe's economy was clouded by signs of a rift between Left-wing EU leaders, who support greater expenditure, and Wim Duisenberg, president of the European Central Bank, which will run interest-rate policy in Euroland.
With 11 Centre-Left governments now in power in the EU, there is growing support in European capitals for boosting public spending in order to create jobs and counter the world economic downturn.
Lionel Jospin, the French Socialist prime minister, and Oskar Lafontaine, the new German finance minister, are both interested in permitting single-currency countries to exceed their Maastricht Treaty limits on public deficits - provided the overspend is due to public investment.
This would allow them to escape fines under the "stability pact", a rigid system to control spending that was put in place at the insistence of the previous German government. But Mr Duisenberg, a banker with a strong belief in budgetary discipline, believes that breaking deficit limits and bending the rules of the stability pact would be unacceptable.
It would, he fears, amount to political interference in the running of the euro, which the former German Chancellor, Helmut Kohl, had hoped would be a strong currency, run by an independent central bank that was modelled on the Bundesbank and free of political pressure.
telegraph.co.uk |
