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EU proposes Europe-wide sales tax

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(BRUSSELS) - The European Commission proposed on Tuesday the creation of a Europe-wide value-added tax as part of reforms to fund the next European Union budget, but the idea faces an uphill battle.

The EU's executive arm unveiled proposals to increase the ability of Brussels to raise its own funds for the 2014-2020 budget to reduce contributions from cash-strapped governments.

The idea of a European tax has already met resistance from economic powerhouses Britain, France and Germany following a recession and debt crisis that forced governments to cut national budgets and raise taxes.

"We encourage everybody to engage in an open debate without taboos, notably about the principles to underpin the future EU budget beyond 2013," said European Commission President Jose Manuel Barroso.

"At times where public spending is under pressure, we suggest ways to achieve a European budget that is up to the challenges we are facing collectively," he said.

But Britain's immediate response was negative.

"The UK is in favour of any steps to simplify the financing of the EU budget, but we will not consider any new tax," a UK diplomat said.

About three-quarters of the EU's budget, which totalled around 123 billion euros this year, is funded through national government contributions, the rest coming from a levy on national VAT receipts and import duties.

"The current system of EU financing has evolved piecemeal into a confusing and opaque mix of contributions from national budgets, corrections and rebates," the commission said.

The EU executive proposed new ways to collect funds, including taking a share of a financial transaction tax, the auctioning of greenhouse gas emission allowances or an EU charge related to air transport.

The commission also suggested the creation of a separate value-added tax, an EU energy tax or an EU corporate income tax.

The proposals must be agreed by EU states and the European parliament.

French minister for Europe Pierre Lellouche has said the idea of a European tax was "perfectly ill-timed," saying the goal should instead be to "make savings" in Brussels.

The proposals set the stage for tough negotiations over the 27-nation bloc's 2014-2020 budget, with battle lines drawn over farm spending, which accounts for 40 percent of expenditures, and rebates for states such as Britain.

The commission said the Common Agricultural Policy, dear to farm-heavy states such as France, "needs to evolve" but the EU executive did not propose ways to reduce it as Britain has demanded.

Farm spending accounted for 65 percent of the EU budget in 1988 but its share has fallen to 40 percent today, the commission said.

French President Nicolas Sarkozy has already warned that he is willing to trigger a "crisis in Europe" if anyone tries to "dismantle" the Common Agricultural Policy.

The EU executive also avoided any proposals on the rebate secured by former British premier Margaret Thatcher in 1984, who argued that a large slice of EU money was used for farm subsidies from which her country did not benefit.

The commission recalled that the British contribution to the financing of the EU budget remains stable at around 10 percent, in fourth position after Germany, France and Italy.

"At the same time, EU payments to the UK are expected to increase in 2011," it said.

The British finance minister, George Osborne, has signalled that London would not give up its rebate.

"I have no doubt that others will want to put it into the mix, but they'll be wasting their time because we are not going to give way on the abatement," he said last month.

"People better know that at the beginning of the process, because they'll certainly discover it at the end."

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