French fuel VAT plan should be debated: eurozone chairman

May 30, 2008

, LUXEMBOURG, May 30 – The chairman of the Eurogroup of finance ministers Jean-Claude Juncker said Friday that a French plan to cut value added tax on oil to help ease fuel prices was not "preposterous" and should be debated.

"To think about a political reaction to the rise in and volatility of oil products is not a preposterous idea but is one well worth thinking about," said Juncker, whose is also Luxembourg\’s prime minister and finance minister.

With oil prices close to all-time highs, fishermen and truckers have led waves of protests against record fuel prices, raising pressure on EU governments to react urgently.

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

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.

Despite the growing public outcry against record energy prices, Sarkozy\’s idea received a mostly cool reception from many of Paris\’ EU partners other than Juncker, who chairs regular meetings of eurozone finance ministers.

While open to considering Sarkozy\’s idea, Juncker also voiced opposition to using tax cuts to ease consumers\’ pain.

"The fact that Sarkozy started a debate which merits reflection doesn\’t bother me at all," Juncker said.

"All solutions that could be considered must respect the terms of reference of the Manchester Eurogroup (meeting) whereby there can be no reduction in taxation," he said.

In September 2005, European finance ministers agreed in Manchester to refrain from using short term measures such as tax cuts to appease public outcry at high oil prices.

They agreed that easing the tax burden would only discourage consumer nations from making the "necessary adjustments" needed to adapt to expensive oil, among them encouraging energy saving and renewable sources.

Following a request from Portugal for an urgent debate, Slovenian Prime Minister Janez Jansa said on Wednesday that he would put soaring oil and food prices on the agenda of an EU summit on June 19-20.

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