Italian proposal for EU treaty on harmonised tax threatens rift

Italy announced plans yesterday to press for a controversial EU-wide treaty on taxation, as it outlined ambitious proposals to kickstart growth in Europe's economy.

Giulio Tremonti, the Finance Minister of Italy, which holds the rotating EU presidency said that a treaty on tax "would be a symbol of the EU's ever greater integration".

In a move that will cause alarm in London, he said this could include "the standardisation of corporate tax rates", something fierecely opposed by the British and Irish governments. Less controversially, the treaty would also would replace more than 200 existing accords which prevent people or firms being taxed twice on the same income, Mr Tremonti said.

The plans for a "New Deal" to reawaken the sluggish European economy by putting millions into transport and research and development, were long-term ones, he said.

Mr Tremonti told the European Parliament that a big investment programme was compatible with a flexible interpretation of the so-called Growth and Stability Pact which lays down tight rules for the 12 countries that have adopted the euro.

Mr Tremonti said: "This is not in any way watering down the pact. It has to be applied in an intelligent, flexible manner."

In its presidency objectives, Italy said "the revitalisation of the European economy depends on a upswing in public investment particularly in infrastructure and transport". In the US, it said, the "proportion of public investment in relation to gross domestic product has remained unchanged in the past decade". But in Europe, the proportion had decreased by 0.5 per cent, equivalent to a difference of €50bn (£34.5bn) a year.