European rebate vat proposal

Following this year’s 41 percent jump in the price of crude oil, French President, Nicolas Sarkozy, is aiming to strike a euro zone response to the situation, and driven by French finance minister Christine Lagarde, coercing other ministers into talks over analyzing fiscal policy which can be used to aid the issue which is partly causing record inflation.

Inflation was recorded at a record 3.6 percent last week and the German finance minister, Peer Steinbrueck, has described the situation as a challenge.

The French plan is to use the surplus in tax receipts related to oil, in order to support those who are most affected by the sharp increase in prices, and that governments can make compatible oil-product price movements.

However Germany, Spain and the Netherlands have not backed the French call and do not consider suspending value added tax on oil as a serious way of reducing energy costs. They all quoted the fact of the Manchester declaration of 2005 where EU finance ministers said that they would not interfere with oil prices by acting politically using distortionary fiscal measures.

Many critics of the French proposal are keen to site the fact that the government already faces problems balancing their budget as so cutting such taxes will only make the situation harder.

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