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EU carbon tax would help climate, and create jobs

Taxing carbon dioxide emissions instead of labor would help the environment and create jobs, European Union Taxation Commissioner László Kovács said, signaling the options in a review of energy taxes and employment policy.

Taxing emissions would give companies more of a stake in fighting global warming, Kovács said at a conference of academics and economists in Brussels today. Tax incentives would help the EU in its efforts to cut greenhouse gasses, under the global Kyoto Protocol on climate change, by creating a market for buying and selling pollution credits, he said. „Uniform carbon taxation throughout the EU could be an efficient instrument comparable to the extension of the emissions trading system,” Kovács said. The idea is gaining political currency. The UK Conservative Party today pledged to increase carbon-emissions taxes in its campaign for elections in 2009 or 2010. French Prime Minister Dominique de Villepin November 13 called for taxes on imports from the US, China and other countries not joining the Kyoto agreement. Belgian Prime Minister Guy Verhofstadt backed the idea November 18.

Increasing levies on energy could also let governments cut tax on labor, Kovács said. That would fulfill a job-creation idea pushed by the European Commission, the EU executive agency where he's one of 25 members. The EU is due to review a law that sets minimum taxes on energy products next year. Kovács cited research, to be discussed at today's conference, arguing that jobless benefits discourage unemployed people from finding work. He pointed as well to findings that tax breaks can boost employment of low-skilled workers. The commission also plans a series of papers to help countries bring their tax policies into line with EU rules, Kovács said. The initiative will help governments respond to issues including court decisions that let companies deduct their losses in other countries in some circumstances, such as in a dispute between Marks & Spencer Group Plc and the UK. Court cases and economics are forcing EU countries to bring their tax systems more into line, said Daniel Gros, director of the Centre for European Policy Studies, the host of yesterday's conference.

The trend confronts both lower-tax states such as Ireland, fighting for their autonomy, and ones with higher rates such as Germany, which find their companies increasingly able to move abroad, Gros said before Kovács's speech. “The tide of history is clear,” Gros said. “It's like global warming, two steps forward, one step back.” Kovács said that the EU agency plans to propose by 2008 a system for a common corporate tax base, letting companies calculate their taxable income the same way in each country to ease the burden of preparing differing returns. The plan -- in the works since before Kovács took office two years ago -- may become optional as opponents including the UK, Ireland and some eastern European members have vowed to veto any mandatory law. The EU can make tax laws only by unanimous agreement. As an alternative, Kovács said, an optional system could win agreement from as many as 20 countries by the end of 2008. The system will help, rather than hinder, tax competition as national systems become more comparable, he said. (Bloomberg)