Tax Proposed To Aid Africa, Possibly For General Revenue

By ANN Senior Correspondent Kevin "Hognose" O'Brien

The financial ministries of the European Union are debating a new fuel tax.  At this juncture, the ministers have only agreed to commission a study on the tax, which might apply to airline tickets, but more likely would apply to aviation fuel, especially jet fuel, and be transparently absorbed into ticket prices.

Explanations on the tax depend on whom you ask -- its original sponsors want to extend aid to underdeveloped areas, especially Africa, but other finance ministers want the money to deal with an anticipated EU operational bureaucracy budget shortfall.

The tax itself is not without its opponents. Not surprisingly, the nations that depend heavily on international trade and travel, such as Ireland and Italy, are leaning towards opposition. Nations that are largely self-contained, such as France, Germany and Austria, favor the plan. The Netherlands and Luxembourg have also supported it. The poorer countries, like Greece and Portugal, depend on tourism, especially from New World extended families, and are likely to oppose it, and Scandinavia and the new EU nations in the East have yet to express an opinion.

Britain is in a difficult position, according to Reuters. Tony Blair's government might have opposed the tax -- the island nation is among the most dependent on air travel -- but Blair has been leading the charge for increasing aid to developing world countries. Vaccinations and other medical treatments are high on the list of gifts the EU would give. But even Dr Schweitzer depended on his donors; without a source of funds, any EU development initiative is stillborn. This puts aviation dead in the sights of some finance ministers.

The airlines, of course, oppose the plan. "[W]hy target the airlines?" Association of European Airlines secretary-general Ulrich Schulte-Strathaus told Agence France Presse. Schulte-Strathaus was all in favor of humanitarian initiatives, but saw the tax quite clearly as "a measure designed to increase our costs."

Environmentalists, which blame airlines for three percent of global warming, favor a tax exactly because it would cause airlines to retrench. Indeed, the jet fuel tax has been proposed before, in 1997, on environmental grounds. At that time the proposal, which originated in the Netherlands, drew little support.

This time around the fuel tax was proposed by French President Jacques Chirac, and is strongly supported by Germany. Airline tickets in Europe are too cheap, according to German Finance Minister Hans Eichel. "Something has to be done," about low-cost airlines, Eichel said. "When I take a taxi to Berlin airport, it is almost more expensive than flying from Berlin to London."

But other European nations see the tax as suitable not only to help the developing world, but also to lift the burden of the EU operating budget off their own lands. These nations were staggered by the size of the EU budget that is now under discussion for 2007-2013, and would like to limit its impact on their nations. The benefit of using the aviation-fuel tax for the EU budget, according to Austrian Finance Minister Karl-Heinz Grasser, is that it won't stir up the citizenry: "[T]he population will not really notice because it goes through plane tickets," which he preferred to the alternative, "financing Europe through a measure that will really impact on people."

The German minister, Eichel, did not agree on diverting any of the tax from the development-aid project. "I advise against broadening the discussion in this way.... Europe can and should make a contribution to development policy but it can only do it if it is solidly financed." 

Grasser expects that the tax could raise as much as 20 billion euros, assuming that it doesn't cause a drop in consumption from 2002's last available statistic of 60 billion liters. "But we are only at the start of the debate ... the best-case scenario would be for the USA to join as well," Grasser said.

The US may agree to work with Europe on development aid, but odds of American support for the fuel tax are absolutely nil. The proposed tax of Euros 0.25 to 0.33 per liter of jet fuel translates in American terms to about $1.24 to $1.63 a US gallon. American politicians do not want to face the electorate having approved a tax of this size for traditionally unpopular foreign aid.

The recent tsunami emergency brought a generous outpouring of support from both Europe and the USA, but it also stirred up some mutual criticisms. Both sides of the Atlantic want to help those in need, but their methods and cultures are not perfectly in tune with each other. The airline-fuel tax is going to be very controversial and may require both supporters and opponents to meet in the middle. European nations have very few other options, if they want to raise new revenues. Germany in particular is feeling the pain of high unemployment and deficits.

FMI: http://europa.eu.int