EDITORIAL More European oil taxes

Incredible as this may seem, Europe wants to raise its astronomical taxes on petroleum fuels.

Already, taxes account for as much as 80% of the retail price of oil products in parts of Europe and, in many countries, more than half. And the European Commission is working on a plan to nearly double excise duties on diesel fuel and gasoline.

Finance ministers of all 15 nations belonging to the European Union would have to approve the plan. The excise on diesel would rise to $412/kl from $295/kl; the commission hasn't published gasoline figures. The plan would impose a new tax on electricity of at least $1.20/MW-hr.

Why do European officials want to do this to their energy consumers?

Budgetary pressures

The commission's annual economic report for 1997 provides a clue. Governments elsewhere should study the rationale to keep from committing similar misjudgment.

Moving toward European monetary union (EMU), the commission has riveted itself to fiscal policy. It wants to enter the crucial third phase of EMU, which involves adoption of a common currency called the euro, by 1999. To participate, community members must meet several economic targets, including constraint of annual government deficits to within 3% of gross domestic product.

The policy is sound. Coordination of so many economies and currencies won't work without budgetary discipline. But the effort must not become self-sacrificial. Fiscal policies move in that direction when they lean too heavily on taxation.

In part of its annual economic report, the commission acknowledges the hazard. Progress toward the community's economic objectives, "means giving prominence to expenditure restraint as opposed to further increases in the overall tax burden," among other things. Later, however, in a discussion about balancing wage disparities without resort to U.S.-style liberality, this appears: "Non-wage labor costs (or payroll taxes) at the lower end of the wage scale should be lowered with the government revenue losses being compensated for by a stricter control of increases in overall government spending and/or increases in other taxes (e.g., environmental levies)."

For "environmental levies," read "energy taxes."

There are two basic problems here. One is the impulse to so finely target taxation. Workers at the low end of the salary scale gain nothing from payroll-tax cuts supposedly offset by "other taxes." While the impact of such other taxes might smear over a broader range of taxpayers, a tax is still a tax; it still shunts money from private to public hands and drains efficiency. Workers shielded from direct impacts of rising taxation often pay with their jobs, which goes far toward explaining Europe's persistently high rates of unemployment.

The other problem is that Europe must compete in a world in which its energy taxes are, relative to others, extremely high. They hurt European competitiveness. Moreover, they alienate outside energy providers with which they trade. The governments of Middle Eastern oil producers often, and with good reason, complain that the tax take from a barrel of oil products in many parts of Europe exceeds the value of the underlying crude.

Environmental compulsion

In Europe, the environmental compulsion to tax energy seems to be stronger than it is elsewhere in the industrialized world. The carbon tax, for example, first surfaced as a serious possibility in Europe. With the prospect of catastrophic global warming treated as a given in many European governments, imposition of such a levy remains far from out of the question.

Far more certain than catastrophic warming, however, are the budgetary pressures facing European governments as EMU's third phase approaches. Might there be a connection between those pressures and the ready European embrace of environmentalist agendas in which ever-rising energy taxes play so large a role? Overly taxed Europeans deserve to know.