Europe’s High Fuel Taxes: Virtue or Vice?

by | Sep 20, 2000

High oil prices and rising fuel taxes have lit an explosion of fury across the European continent, resulting in protests and blockades of depots and refineries. Following the recent oil price rise, the Europeans have finally realized what a massive burden fuel taxes place on their budgets. In response to the people’s outcry for relief, […]

High oil prices and rising fuel taxes have lit an explosion of fury across the European continent, resulting in protests and blockades of depots and refineries. Following the recent oil price rise, the Europeans have finally realized what a massive burden fuel taxes place on their budgets.

In response to the people’s outcry for relief, most European leaders have arrogantly dismissed requests for reduced fuel taxes, claiming that such an action would be “pandering.” Indeed many have argued that the continuation of massive fuel taxes is a tough but “principled” and virtuous policy.

Europeans have had little patience with political sophistry. Blockades and protest convoys have hit Germany, Belgium and the Netherlands, while truckers, farmers and taxi drivers in Spain, Norway, Denmark, Italy and Ireland have all threatened further action.

Demonstrations in France last week forced the government to offer minor fuel tax cuts worth US$396 million, but England’s Tony Blair vowed to fight all anti-fuel-tax revolts. Blair stated that “lurching into some short-term fix” would be irresponsible, adding that “the effect on the country’s financial standing and credibility would be catastrophic.” That remark reminds me of some U.S. politicians, who claim that letting people keep more of their own hard earned money that they worked for would be “risky.”

Though I don’t care for the tactics of street blockades, I’ll support anyone willing to argue against high taxes. The fact is, fuel taxes in the U.K. and Europe are punitively high. According to a Sept. 11th editorial in Investor’s Business Daily, entitled “The French are Onto Something”, taxes comprise $2.82 of the $4.07 gallon in France, $2.56 of the $3.91 gallon in Germany, and $2.53 of the $3.97 gallon of fuel in Italy. In the U.S., fuel taxes comprise about 39 cents of the average $1.64 gallon of gas. (Still too high, but in Europe, it’s really ridiculous!)

Last week an acquaintance in England sent me this shocking note: “Part of the tax is pegged to price, so an increase in fuel prices raises the tax. Prices are now some 90 pence per liter, over $6.00 per gallon, with $5.00 of that tax. The average Brit pays over $100 a week to run his car, and some $80 of it goes to the government.”

Of course, Blair and other European leaders have numerous explanations for why high fuel taxes are so necessary and desirable.

One hired gun, a professor of economics named Andrew Oswald, listed no less than eight reasons in an editorial “The Economic Case For High Fuel Taxes: published Sept. 12, 2000 by The Financial Times. Here’s my summary of his points: 1) If government didn’t take consumers’ money, OPEC would. 2) People need to be able to plan for high fuel taxes with certainty – lower taxes might surprise them. 3) It is unfair to cut taxes now, because humans are too selfish to volunteer to pay higher fuel taxes if the oil price fell. 4) Fuel is a good thing to tax because people will keep buying it anyway. 5) A tax on fuel is a well-deserved punishment for oil’s pollution. 6) A fuel tax is the next best thing to road-use taxation. 7) The fuel tax punishes the rich with cars while helping the poor without cars. 8) Our grandchildren might not have enough oil if we don’t tax it highly.

I’ll leave it to our wise readers to identify the outrageous contradictions, logical fallacies, and statist thinking underlying these attitudes. For my part, I’ll offer one simple statement about taxes given by past Supreme Court Justice John Marshall: “the power to tax is the power to destroy.” If that’s so, there’s a whole lot of destruction going on in Europe.

Andrew West is a Contributing Economics Editor for Capitalism Magazine. In 1997 he received the Chartered Financial Analyst designation from the Association for Investment Management and Research.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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