Sunday, May 15, 2005

One to watch

Of the welter of news and comment in today's papers, one to watch is a report on the front page of the business section of The Sunday Telegraph, under the heading: "EU ministers agree 'absurd' airline tax".

This relates to the ECOFIN meeting in Luxembourg last Thursday (and how many of us even knew there was a meeting?) when the finance ministers of the 25 EU member states, according to the somewhat misleading headline, "agreed to impose a tax on plane tickets to fund development aid programmes in Africa".

Rather less detail can be found on the Luxembourg presidency website but from that emerges the central fact that this is a "voluntary" tax, with the choice left to member states as to whether to impose it. But, as the statement says: "All the Member States agree to see the introduction of such a tax as an obligation to achieve a particular result."

As an aside, this very much illustrates the way much of the European Union works for, as it stands, the Union has no power or "competence" to levy such a tax but, as so often, they manage to introduce an extra-treaty power by securing a "voluntary" agreement within the framework of the insitutions – this one being ECOFIN.

In the fullness of time – which may encompass the span of a decade or more - the view will be taken that, as member states are adopting such and such measures, albeit imperfectly, it might as well be incorporated into whatever treaty happens to be in the course of preparation, purely in the interests of "efficiency" and "fairness" to make sure it is administered properly. In this way does the ceaseless ratchet of economic and political integration work, all based on this wonderful myth of "co-operation" between member states.

To return to the subject at hand, the "proposal", with must be fleshed out by the ECOFIN meeting of 7 June, is already invoking despair from the airlines, with British Airways describing the tax as "absurd" and "illogical". It is saying that there is no reason why airline passengers should be singled out to make a contribution to aid projects.

Other airlines, according to The Telegraph, are equally outraged. "This is misguided and unhelpful as the airline industry is hardly making any money at the moment," said a spokesman for easyJet. "If ministers want to alleviate global poverty they should look at the oil industry. "The last thing the aviation industry needs is ministers meddling and indiscriminately imposing a tax for a purpose that has nothing to do with the airline industry."

According to a document drawn up for the ministers' meeting, a tax of €10 (£6.90) on airline tickets for flights within the EU and €30 on flights outside the EU would generate about €6bn for development spending. The plan was devised by Chirac (ostensibly) to increase the amount of aid reaching the world's poorest people and was backed by Schröder.

However, there is a more sinister point that is being missed here, and one that explains the enthusiasm with which the idea is being taken up by the Union. In effect, under the guise of the typically "fluffy bunny" idea of helping out developing countries, this is in effect a proto-European tax, the Holy Grail of the integrationalists, who see such a move as the ultimate answer to their liberation from perpetual reliance on member states for funding.

In this context, it is known that taxation commissioner László Kovács is actively working on a number of ways by which the EU can raise money independently of the member states, one other being a road toll, based on the Galileo satellite system. Another is the so-called "Tobin tax", an excise tax on cross-border currency transactions.

This "airline tax" therefore, is far more sinister than at first appears, the nature of which comes over more clearly in a CNN report which refers to the "optional charge" falling short of what Chirac originally proposed. But, says the report, "it could break the ice on what might one day become a broader tax to help Africa."

The report goes on: "This will be a voluntary contribution which some member states propose to turn into a mandatory contribution but we are leaving this open," said Luxembourg Prime Minister Jean-Claude Juncker. "Five or six countries were ready to go ahead first," he said.

And there you have it… little bit, by little bit, the ratchet tightens and, once the "ice is broken" the way is clear for a "European tax", which can then be extended from its hypothecated base to cover broader expenditure issues. As we said, this is definitely one to watch.

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