EUROPEANS SEND MESSAGE ABOUT FUEL TAXES

Hardship is driving home a difficult point about excessive taxation in Europe, where oil consumers have taken to the streets over fuel prices. While cyclicality of market phenomena presents hope for relief, European officials must take the lesson and not institutionalize pain.

Sep 15th, 2000

Hardship is driving home a difficult point about excessive taxation in Europe, where oil consumers have taken to the streets over fuel prices. While cyclicality of market phenomena presents hope for relief, European officials must take the lesson and not institutionalize pain.

Protests against leaping prices of gasoline and diesel fuel threatened varying degrees of paralysis at various times during the week of Sept. 11 in France, the Netherlands, Belgium, and the UK.

Commercial fuel users slowed highway traffic and blockaded refineries, fuel terminals, and border crossings. In places, service stations ran out of fuel because product deliveries were impossible.

Recent increases in the price of crude oil have turned the dull ache of Europe's heavy fuel taxes into wrenching pain for consumers. And they put governments on the defensive.

In France, where protests hit first, the government quickly relaxed fuel taxation. Other governments on the continent and in the UK held firm on fuel duties but faced escalating problems by late in the week.

German Chancellor Gerhard Schröder refused to trim ecology taxes introduced by his government and warned of fiscal deficits that might develop if he did so. He nevertheless said some sort of concession was possible.

UK Prime Minister Tony Blair blamed the oil market for the problems and said he wouldn't yield to protests aimed at bringing his country to a halt.

"We could not possibly start introducing emergency budgets, cutting and raising tax on the basis of highly volatile moves in the oil markets, which move on a day to day as well as week to week basis," Blair said. "No government could sustain its economic policy on such a basis. The proper time to make budget judgments is at the time of the budget when the year can be looked at as a whole."

He's correct about the timing. The trouble is that even when they act in the calm atmospherics of annual budget deliberations, European governments tend to err on the side of ever-higher fuel taxes.

The Conservative Party predecessor to Blair's Labour government in 1993, for example, introduced an escalator that increases the fuel duty in increments above the inflation rate. The rate began at 3% and quickly rose to 5%. The current government raised the escalator to 6% in 1997 then abolished it last November in response to protests by truckers and a Conservative backlash.

By then, however, the UK had the highest fuel taxes Europe. The fuel duty and value-added tax (VAT) now account for more than 70% of the pump price of gasoline in the UK, although part of the VAT is reimbursable.

Part of the rationale for the UK fuel duty escalator was to discourage driving for environmental reasons.

Apparently, however, the British, along with continental Europeans, have reached the limits of their patience with environmentally based confiscation of private wealth. Hence the protests.

A pattern emerges here. Governments sell tax increases to citizens on the basis of environmental protection yet defend them, when the pain becomes acute, with arguments about fiscal responsibility. No wonder Europeans are angry.

The current pain will go away when oil prices recede, as they eventually will.

But Europeans should remember it when their governments revive their now-dormant crusade for stiff levies on carbon emissions as a precaution against global warming. At that point, oil companies-including the European ones now complicit in the propaganda-should make certain no one forgets how victims feel when governments behave like thieves.

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