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Europe squares up to taxing budget questions

BRUSSELS, Aug 12 – Europe geared up on Thursday for battle over EU funding, with a drive to slash contributions leaving a hole Brussels says can be filled only by new cross-border taxes or an end to political rebates.

Under pressure from European Union member states, the bloc\’s Polish budget commissioner Janusz Lewandowski has proposed lowering contributions by a combined 30-40 billion euros a year (up to 50 billion dollars).

He has suggested a variety of ways in which that can be done, so as to maintain the bloc\’s budget in the region of 140 billion euros per year (or just more than one percent of combined European gross domestic product).

With the finishing touches being put on proposals for national governments and the parliament to address next month, Lewandowski is trying to negotiate radical reform of the EU\’s funding for the next budget cycle from 2014 to 2020.

A bloc-wide tax is "a possibility," he insists, for all his entourage maintains it is not his preferred option, partly due to a push by the European parliament, itself growing in clout, for greater fiscal responsibility.

Britain, France and Germany have each declared their hostility to taxes that France\’s junior minister for Europe, Pierre Lellouche, says are "perfectly ill-timed" and "would constitute a major transfer of sovereignty."

British Treasury Minister James Sassoon articulated the London red line that "taxation is a matter for member states to determine at a national level" and stressed that its government "would have a veto over any plans for such taxes."

Others are more open. Spain\’s Prime Minister Jose Luis Rodriguez Zapatero says the idea should be explored if it "strengthens" the EU, while Belgium\’s budget minister Melchior Wathelet argues the current model is "unhealthy."

"I see a tendency, that it is possible in terms of public opinion to defend a tax on financial transactions or another form of tax on the financial sector. It would even be popular," Lewandowski told Polish press agency PAP this week.

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He said EU finance ministers were saying "keep looking, maybe you will find something, so long as it lets us reduce payments," and warned otherwise of a looming "impasse" with Paris, Berlin, London and others in budget talks.

As well as financial transactions, Lewandowski is considering a direct EU levy on national taxpayers, a tax on air transport and another on carbon emissions trading revenues, ahead of counter parliamentary plans in October.

However, these could prove to be a red herring, with national rebates for Britain, Denmark and Germany also in his sights alongside cuts in farm payments and grants for poorer regions, the latter pair worth 40 percent of EU spending.

Yet Lewandowski also faces fierce opposition when it comes to agricultural policy, considered sacrosanct in France, where President Nicolas Sarkozy has said he would rather trigger "a crisis in Europe" than accept cuts.

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