French proposals to cap value-added tax on fuel across the European Union are less effective than Italian plans to raise taxes on profits of oil companies, the bloc's top energy official said today.
"We need to help vulnerable consumers but the Vat measure is not the best one," European Energy Commissioner Andris Piebalgs said.
At a summit today, French President Nicolas Sarkozy plans to ask EU peers to back a freeze on Vat on fuel across the 27-nation bloc to help fishermen, farmers and truckers hit by soaring bills, a French official said yesterday.
Hours before the summit, German Chancellor Angela Merkel told parliament in Berlin: "In our view, financial policy intervention, which is being discussed again and again... should be avoided."
French ministers have said Europe's failure to respond to distress over fuel prices was one reason why Irish voters rejected the Lisbon treaty, as it made the EU look remote to citizens' concerns.
EU finance ministers this month unanimously reaffirmed their opposition to distortionary tax measures that prevent consumers and businesses adapting to a long-term rise in energy costs.
"You would continue growth of consumption, so it's not the best answer to the political goals we are placed under," said Mr Piebalgs.
He joined European Commission President Jose Manuel Barroso in voicing sympathy for an Italian plan for a "Robin Hood tax" on oil companies' windfall profits.
The Italian cabinet yesterday approved a proposal by Economy Minister Giulio Tremonti raising the tax on oil company profits to 33 per cent from 27 per cent in 2009 to tap earnings due to record high petroleum prices.
"If the governments, for example, have more revenues from the taxation which can be earmarked for vulnerable consumers... I think this measure is much faster and can reach the audience we are looking for," said Mr Piebalgs.
Mr Barroso told the Portuguese business daily Diario Economicotoday the Commission was not opposed to the idea. Swedish Prime Minister Fredrik Reinfeldt told reporters he would argue against any measure that distorted market mechanisms or removed the price incentive to change consumption patterns.
"The answer cannot be to continue with subsidies or introduce new subsidies that is not based on market price mechanisms because that is sending a signal that we can keep on over-using or even increasing the use of fossil fuel," he said.