EU tax proposal will face fierce Irish opposition

Irish officials were stunned yesterday when Belgium's Finance Minister, Mr Didier Reynders, proposed levying a new EU tax on all citizens in the Union. The Minister for Finance, Mr McCreevy, is likely to be among the fiercest opponents of the proposal when it is discussed later this year.

Belgian politicians have been murmuring about such a tax for months but their statements have been so vague until now that nobody has taken much notice. What made Mr Reynders's statement yesterday so noteworthy was that he identified three policy areas that the new tax could be used to finance - defence, foreign policy and enlargement of the EU to include new member-states from central and eastern Europe.

Belgian officials compare the proposed tax to local taxes levied in many European countries to pay for services provided at a local level. They argue that as the EU expands its responsibilities in such areas as foreign policy and defence, Europeans must consider how these new responsibilities should be financed.

At present, the 15 EU member-states meet every six years to agree a budget plan for the EU - deciding how much should be spent on agriculture, structural funds etc. Germany complains that it contributes a disproportionate amount to the EU budget while other large states, such as France, benefit more substantially from EU subsidies.

Belgian officials say that a new EU tax would initially complement the present system of funding the EU but could eventually replace it. They argue that citizens would see a direct EU tax as a more transparent way of funding the activities of the European institutions.

At present, few Europeans know how the EU spends its budget and a poll published this week revealed that most EU citizens who expressed a view believed that most of the budget went on administration. In fact, administration costs account for just 5 per cent of the EU budget, the largest part of which - 44 per cent - goes towards subsidising agriculture.

Mr Reynders remained vague yesterday on the level of the new tax and whether it would take the form of income or sales tax. He said such details would be worked out among EU finance ministers later in the year.

British and Irish opposition to the proposal is likely to be so emphatic that there is little chance that EU leaders will agree to introduce the new tax this year. But Belgium believes it is important to put the idea on the European agenda now in the hope that it could form part of a package of reforms later.

Mr Reynders's proposal comes in the context of a fledgling debate about Europe's future shape that will culminate in a treaty-making summit in 2004. Germany's Chancellor, Mr Gerhard Schroder, has proposed far-reaching changes to the way Europe is governed, with the Commission being transformed into a strong executive while the European Parliament is given control over the EU budget.

Under the German proposals, the Council of Ministers, the body representing member-states that currently makes most decisions, would become a second chamber of parliament.