Eurozone against tax relief to ease fuel price pain

3rd June 2008, Comments 0 comments

Finance ministers from 15 eurozone countries are against the proposal of cutting taxes to solve soaring oil prices problems.

3 June 2008

FRANKFURT - Finance ministers from the 15 eurozone countries agreed Monday that cutting taxes would be the wrong response to soaring oil prices, panning a French proposal to suspend sales tax on fuel.

"There's no question of putting fiscal measures in place to offset soaring oil prices," Luxembourg Finance Minister Jean-Claude Juncker said after chairing a meeting with eurozone counterparts.

Instead the ministers agreed to mull other measures, such as ways of discouraging speculation, that could be put to EU leaders for consideration at a 19-20 June summit in Brussels.

"We think that ... member states need to think up some measures to put in place," Juncker told reporters. "We think that oil prices, just like food prices, are going to stay high."

A French proposal to cut value added tax on fuel found little support at the meeting, held exceptionally in Frankfurt to mark the tenth birthday of the European Central Bank.

The ministers agreed it would be better to stick to a September 2005 agreement reached in the English city of Manchester not to use fiscal policy to help people cope with soaring oil prices.

"We should stick to the Manchester declaration and not react politically or try to intervene," German Finance Minister Peer Steinbrueck said.

"I think that if we want to reduce the level of consumption and be more efficient, (the tax cut is) not a good idea," Spanish Finance Minister Pedro Solbes said.

Facing blockades of French ports by striking fishermen, French President Nicolas Sarkozy suggested last week that VAT on fuel could be suspended when prices go too high and said he would seek EU backing for the plan.

Dutch Finance Minister Wouter Bos said: "I think France already has a few problems in bringing its budget in order so cutting taxes will not necessarily make it easier for them."

Under EU rules, member states cannot apply a VAT rate of less than 15 percent unless they are able to obtain an exemption for a specific product or service, which requires unanimous backing from all other countries.

In a letter to EU counterparts, French Finance Minister Christine Lagarde did not specifically raise the idea.

Instead she said Europe should look at how surplus revenues from VAT on oil products could be used to ease consumers’ pain.

Juncker declined to elaborate on what other ideas the ministers were considering although he confirmed that they would look at discouraging speculation as one possibility.

Lagarde suggested that data on oil stocks should be published weekly, as is done in the United States and Japan, in order to give greater transparency to the market.

With oil trading at all-time highs in May, eurozone inflation snapped back to a record 3.6 percent after easing to 3.3 percent in April, putting pressure on governments to provide some relief.

Waves of protests have broken out across Europe against high fuel prices, with fishermen and truckers leading the outcry for cheaper oil.

With few easy options for providing relief, Dutch Finance Minister Wouter Bos said that ultimately "we have to get used to a world of high oil prices."

[AFP / Expatica]

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