Interview: EU’s Kovács backs ‘Robin Hood’ tax on oil firms

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In an exclusive interview with EURACTIV Hungary, EU Taxation Commissioner László Kovács backed the idea of applying ‘Robin Hood’ taxes to oil companies as a means of compensating the poor for soaring fuel prices.

Taxing the rich to fuel the poor 

While the commissioner noted that “the Robin Hood tax is not appropriate for curbing oil prices,” he said taxing excess profits could nevertheless provide a useful extra source of income for governments. 

“It can be appropriate for compensation: extra taxes on extra profits mean extra income that can be used on compensating those most affected by high fuel prices,” said Kovács. 

However, he stressed that this is only a recommendation – nothing mandatory. He added that if member states do decide to use such a measure, the Commission will not seek to impose any restrictions the utilisation of additional revenues. These “can be used for any kind of compensation – from social assistance to food subsidies. The Commission does not give any recommendations on this,” he said, adding that using the cash to subsidise R&D on renewable energy sources and other long-term projects could be an option. 

In some member states, he points out, such schemes are already in operation. For example, the Portuguese government reimburses income taxes to those most exposed to soaring oil prices, he said. 

Just raising fuel costs? 

Regarding concerns that such measures could increase upward pressure on fuel prices as oil companies pass on the tax to consumers, the commissioner advised national governments to consult with oil companies beforehand. “In effect there is a chance of that, and the Commission cannot avoid it. Obviously we cannot know how oil companies will react to this new tax. This is why we say that member states themselves have to consider this possibility.” 

He conceded that if the tax is simply passed on to consumers, “member states will only be fabricating a kind of re-grouping of revenues,” saying: “If oil companies pass on the tax to every consumer but the government just compensates the poorest, this would restructure revenues, diminishing the difference between lower and higher incomes.” 

However, the commissioner also pointed out that the applicability of the Robin Hood tax is limited, because most oil companies’ profits go unrealised in the EU. Indeed, the majority of oil producing sites are not situated in Europe, which also means that investment decisions may not be affected by the measures. 

Cutting taxes – a no-go area 

Also commenting on a proposal by the Hungarian Ministry of Finance to cut excise duties on fuel as the current level is higher than what is obligatory at EU level, the commissioner said he had had no choice but to refuse it, referring to legislative and policy obstacles. 

The Commission’s opinion is firm concerning tax cuts in the field of oil prices, he said: “If the consumer does not have to face the effects of rising oil prices, it won’t make him change his consumption habits and increase his savings instead […] It can result in possible tax incomes ending up in oil producing countries’ budget. And that is obviously not our goal.”

Freeing up currently frozen excise tax levels would need the whole Community’s agreement, but according to the commissioner such proposals “would be vetoed by several countries”. Instead, he believes a new recommendation regarding bioethanol content in fuel could help lead the way out by raising supply and reducing prices. 

To read the full interview with Commissioner Kovács on the EURACTIV Hungary website (in Hungarian only), please click here.

The price of oil is now hovering around $140 a barrel, putting huge pressure on energy-intensive industries, including the agriculture, fishing and transport sectors, which have staged mass protests throughout Europe in recent months (EURACTIV 02/06/0804/06/08). 

The crisis spurred lengthy discussions among EU leaders at their June summit on how best to address soaring oil prices. A plethora of proposals were put forward, but leaders were unable to bridge their divisions. The idea of a tax on windfall profits accumulated by oil companies since prices started going up was suggested by Italy's Finance Minister Giulio Tremonti. It received a much warmer welcome than French President Nicolas Sarkozy's plan to cut VAT on fuel as prices increase (EURACTIV 20/06/08). 

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