GERMANY SEEKS TO BREAK EU ENERGY TAX DEADLOCK
Date: 20-May-99
Country: EU
Author: Michael Mann
The plan, prepared for a meeting of EU finance ministers on May 25, backs European Commission proposals to introduce minimum tax rates for most energy sources and increase levies on mineral oils.
But Germany proposes leaving detailed discussions on the precise tax rates until November, preferring to secure unanimous agreement on the principle of energy tax harmonisation, according to the paper, a copy of which was obtained by Reuters.
"There is a chance that this outline will be agreed next week, but that still leaves so many crucial things to be decided," said an EU diplomat.
"The fact is that you won't get some countries to sign up to anything more concrete at this stage. One or two states really do have major difficulties with the whole concept," he added.
Many industries are also opposed to the tax plan. In a statement on Wednesday, Eurometaux, the EU's non-ferrous metals association, said any tax would hit competitiveness.
"Energy costs in Europe are already significantly higher than in other economic blocks. Any additional fiscal burden would have...dramatic consequences on employment and investment," Eurometaux said.
To curb greenhouse gas emissions, end harmful tax competition and encourage cuts in taxation on labour, the EU's executive Commission proposed in March 1997 that EU governments increase minimum tax rates on motor and heating fuels and extend harmonised minimum taxes to electricity, coal and gas.
The latest German plan waters down EU Taxation Commissioner Mario Monti's proposals to find a formula to pacify the biggest opponents of the plan, including Spain, Greece and Ireland.
It suggests setting the minimum tax rate for coal and lignite at zero, while most other fuels which do not currently fall under the EU tax regime would have "low positive" rates. Bonn says the exact levels must be negotiated later, after the basic principle has been accepted.
For mineral oils used for heating or motor fuel, the paper underlines that the new rates must be higher than at present, with bigger hikes for fuels with high sulphur content.
In an effort to pacify France, which wants its nuclear industry, which produces no greenhouse gases, treated as a special case, Germany says countries should be able to apply different tax rates "according to the primary energy used."
Britain is likely to be reassured by plans for tax exemptions for fuels used by private households, officials said.
Germany is also proposing exemptions for natural gas in countries where it has less than 12.5 percent of the domestic energy market, "appropriate transition periods" for countries which will have difficulties introducing the new minimum tax rates, and tax rebates for companies which would "suffer a significant competitive disadvantage" through higher taxes.
It also suggests scrapping proposals for tax rates to be raised in stages. Instead, it suggests delaying introduction of the package until 2001, with a review of the system "after a specific period."
Germany is optimistic that its compromise will pave the way to a final agreement by the November meeting of EU finance ministers, when Finland will hold the bloc's rotating presidency.
With the plans requiring unanimous approval, this will not be easy, officials said. Last month, Spain launched a renewed attack on the plans, claiming they would discriminate against poorer southern EU states with relatively low taxes.
