Austria wants EU-wide tax on flights to plug budget gap

A new tax to fund the EU was proposed by the bloc's Austrian presidency yesterday after MEPs said they were unable to accept the spending deal for 2007-13 struck by Tony Blair after months of negotiations.

The Austrian Chancellor, Wolfgang Schüssel, said the EU should set up a funding system which would avoid another damaging spectacle of wrangling between EU member states. He suggested taxes on air travel and short-term financial transactions as income sources that should be considered.

The proposal, which provoked immediate opposition from Eurosceptics, revived a debate that has raged for years in Brussels which has to get all 25 member states to agree on its seven-year spending programmes. The last European Commission wanted an EU tax, saying it would be more transparent and would not increase costs to taxpayers, But member states, including the UK and France, rejected the notion, saying it would prove too unpopular with voters.

Mr Schüssel told the European Parliament in Strasbourg yesterday: "The idea of a stronger own-resources system, a self-financing system is not popular everywhere but it's my task as president in office to make necessary proposals even if they are unpopular. It's absurd that today's short-term financial transactions are completely exempted from tax; it's absurd there are tax gaps, that international aviation is part of a tax gap."

Mr Schüssel called for the tax proposals to be included in a fundamental review of EU revenues and expenditure won by Mr Blair and to be conducted in 2008. The idea is that the study will allow member states to agree in 2009 to a thorough budget overhaul.

The European Commission agreed to study the tax plan as part of the review but said it was "premature" to speculate on the outcome.

Graham Brady, the Tory spokesman on Europe, said: "EU taxes are unacceptable to the British people. What is really absurd is that the new EU presidency is wasting time discussing a further extension of EU powers to raising taxes instead of focusing on the real priority of making Europe more flexible, less regulated and better able to compete in an increasingly challenging global marketplace."

Gary Titley, leader of Labour's MEPs, said: "While a direct tax is not acceptable, a more rational way of doing this, to get away from the 3am carve up, has to be the way forward". He suggested a levy bolted to indirect taxes, modelled on the way an element from council tax is channelled to services such as the fire brigade. An option would be simplify the system so national contributions are based on economic wealth.

The issue came to the fore after MEPs passed a motion saying they "rejected" Mr Blair's spending blueprint for 2007-13, and demanded increases in key areas and more flexibility on how cash is allocated.

The resolution criticised the deal for saying it focused on traditional priorities rather than emphasising policies that would enable the EU to face new challenges, saying it "does not guarantee a budget enhancing prosperity, competitiveness, solidarity, cohesion and security".

The European Parliament has the power to vote the budget down, if negotiations with the member states fail to satisfy MEPs.

Last month, under Mr Blair's chairmanship, EU leaders approved a seven-year financial package of €862.4bn (£590bn), equivalent to 1.04 per cent of the 25-member bloc's gross national income.