EU to study tax steps to cushion oil shock

BRUSSELS - European Union leaders will ask the European Commission on Friday to study possible short-term tax measures to ease the pain of soaring oil prices and report back by October, a draft summit statement showed.



By (Reuters)

Published: Fri 20 Jun 2008, 6:20 PM

Last updated: Sun 5 Apr 2015, 1:11 PM

But leaders of the world's biggest trade bloc will underline the need to avoid distortionary tax and policy steps that prevent business and consumers adapting to higher energy prices.

"The European Council invites the Commission to examine the feasibility of taxation measures to smooth the impact of sudden oil price increases and report before the October European Council (summit)," said the text obtained by Reuters before the final working session of the two-day summit.

It did not list the measures to be considered, but France has proposed capping value-added tax on petrol, Italy plans a windfall tax on oil company profits and Austria wants an EU tax on commodity speculation.

"Measures can be considered to alleviate the impact of higher oil prices on the poorer sections of the population, but should remain short-term and targeted. Distortionary fiscal and other policy interventions should be avoided as they prevent the necessary adjustment by economic agents," the draft text added.

The 27 leaders can change the final text, but diplomats said major alterations were unlikely.

Germany, Sweden, Denmark and the EU's energy commissioner criticised French President Nicolas Sarkozy's proposal to cap value-added tax on petrol and use the proceeds of higher oil tax revenues to help sectors worst hit by high energy prices.

One summit participant said asking the Commission to study such measures was a face-saver for Sarkozy but would lead nowhere.

Cushion

Oil prices have roughly doubled in a year to above $130 this week, prompting Europe-wide protests by distressed sectors such as fishermen, farmers and truck drivers.

A Commission official said member states were failing to use all the tools at their disposal, such as acceptable state aid for struggling transport companies or payments to help citizens who can no longer afford to heat their homes.

"You can give special tariffs on gas or electricity to help vulnerable customers, but a number of states have not even defined what vulnerable consumers are," the official added.

The EU insisted measures to cushion the blow of surging food and oil prices to low-income households must not distort price signals and cause "second-round effects on wages and prices" that could start an inflationary spiral.

The draft summit statement called for further EU efforts to increase energy efficiency and support incentives to boost investments by households and industry in energy saving and use of renewable energy sources.

"It is easy to bring in reduced VAT on energy-efficient items," another Commission official said. "That fits with the VAT system, which need not be changed ... and it is compatible with the long-term orientations."

The draft called for more dialogue between oil producers and consuming nations "to ensure better response of supply to market needs and to improve the framework conditions for investment in oil exploration, production, refining capacity and alternative energy sources."

A Commission document showed that by 2020 EU oil imports could fall to less than 570 million tonnes a year, from 610 million now, as new energy-saving policy kicks in and consumers react to oil prices above $100 a barrel.

At a midnight news conference after the leaders discussed policy responses to high oil and food prices, Commission President Jose Manuel Barroso said governments could, if they wished, cut excise duties on energy products and impose windfall taxes on profits.

He announced emergency measures proposed by the Commission for the fisheries sector, also faced with severe restrictions on fishing because of the depletion of Europe's fish stocks.

"All the countries are perfectly aware that the oil shock is of an unparalleled scale compared with the three previous oil shocks, notably those of the 1970s," France's Sarkozy told reporters.

"There are a battery of solutions -- discussions with producer countries, the need for transparency to avoid speculation, the will to understand how this oil market works."

Ministers have suggested Europe's failure to respond to distress over petrol prices was one reason why Irish voters rejected the EU's new reform treaty in a referendum last week, as it made leaders look cold to citizens' concerns.


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