TAX AND SPIN IN EUROLAND
Blair and Schroder should harmonise their troublesome Chancellors,
says Sion Simon IN THE GLORY days of the Eighties, when smart one-liners were the only thing Labour had to keep it sane, Denis Healey used to describe Oskar Lafontaine as 'a cross between Rosa Luxemburg and Radio Luxembourg'. This fact is little known, which always enhanced my enjoyment when recycling it from time to time in order to give the impression that I was amusing and clever. Thus I was greatly dis- appointed when, during the 1990s, Herr Lafontaine slipped completely off the political radar. It looked unlikely that he would ever return. My witty saying became so arcane as to be obsolete. From my point of view, therefore, the renaissance of this populist left-winger is excellent news, as it affords me the opportunity not only to gain kudos in the intellectually competitive world of metropolitan punditry, but to enlighten the readers of The Spectator through another man's piercing insight.
Lafontaine's long march back from the wilderness to become finance minister in the new SPD-led German government is not such good news for Herr Blair and Herr Brown. His briefing of the German press after Tuesday's Ecofin meeting that he wants to scrap majority voting on tax questions, thus ending the British veto, was a classic Lafontaine jape, the only con- crete consequences of which were the amusement of the left faction in the SPD and the intense irritation of the British. Red Oskar will pretend that he did not realise how unhelpful these comments were to a UK government which had just begun to turn the corner in playing down what the Daily Mirror called the 'Eurocrats to tax babies' story. But he knew all right.
This textbook Rosa Luxemburg-Radio Luxembourg outburst came during a week in which the frenzied desire of the press to fmd the killer scoop that will precipitate New Labour's slow slide to oblivion has conspired with the deadpan counterspin of Team Campbell to obscure the truth about what is actually happening. On this occa- sion, the fog is made even thicker by the Germans also spinning for Deutschland and even the French lobbing in the odd barb. According to last Friday's Guardian, ' "There are no divisions here. It may be there are some in Germany and people are winding things up. But this is German poli- tics, nothing to do with the UK," said one [British government] insider.' A senior German source, however, took the oppo- site view: 'It's the rivalry with Blair. Brown wants his own committee with us. We are not clear if the British Cabinet actually talks to one another.'
This knot is not so difficult to disentan- gle. Both sides are telling the truth about the other but being economical with the actuante about themselves. At a meeting in the Treasury last week, Brown proposed three bilateral committees with Lafontaine — on jobs, budgetary and fiscal policy (causing the German almost to fall off his chair with surprise). The given reason was a desire to dish the French, replacing them as Germany's principal ally. Not that this was ever likely, the Germans having mere- ly talked about the possibility of opening up the Franco-German axis into more of a triangle. But the real reason for Brown's enthusiasm for German committees is that a few days earlier the first Anglo-German bilateral between the Chancellor's hated rival Peter Mandelson and his counterpart from the German DTI had taken place. If Herr Mandelson is going to have a bilater- al committee with the Boches, then Reichs- marschall von Brown is surely going to have at least three. A similar dynamic per- tains in Bonn, where Lafontaine can rea- sonably be characterised as a bloodthirsty rottweiler snapping at the heels of the new socialist Chancellor, Gerhard SchrOder.
This week's hullabaloo about tax har- monisation is a more subtle juxtaposition of politically motivated journalism and disin- genuous political counterspin. Even the day before Lafontaine set the fox among the livestock, the Independent, the Times and the Daily Telegraph all led their front pages with Labour Euro-stories. The Independent carried the official Charlie Whelan line, `Brown: I'll veto Europe's tax plans', which has the iron chancellor storming over to Brussels to put a stop to crazy Oskar Lafontaine's evil scheme to impose a single Deutschland Super Tax on every EU citi- zen, particularly the hard-working, entre- preneurial Brits. Wielding the veto like a broadsword, Brown puts paid to the das- tardly schemes of the expansionist Hun. 'We are going to play hardball. We think we are in a majority and we will win this debate.'
Things looked rather different in the Times, which had the headline, 'EU pre- pares bonfire of tax incentives'. Britain's cherished inward investment, our tax-advan- taged small businessmen and the multibil- lion-pound Eurobond market are all under threat. The price for vetoing a minimum 20 per cent tax on saving and investment income generated in EU bank accounts held outside the bearer's resident country (and thus saving the Eurobond market, with its umpteen thousand attendant jobs) is that dozens of other preferential tax rates will disappear in what Eurosceptics see as the first step towards harmonisation.
The Blair government's problem with European tax matters is that it cannot tell the truth, even though reality is quite innocuous. Most of the fuss now being made is nonsense. VAT harmonisation is hardly news, and nobody is threatening the UK zero rates. Income tax is not on any EU agenda. Britain retains the power to veto a minimum rate of corporation tax, even if the rest of the EU was serious about it, which it isn't.
And yet there is such a thing as harmoni- sation; and its very existence is what lands New Labour with negative headlines. Obvi- ously, the creation of a single market and a single currency requires, if not a single fis- cal jurisdiction, at least a fairly homoge- neous one. As Wim Duisenberg argued earlier this week, we can all have different tax rates, as long as they are not too differ- ent. For that reason, minima and maxima, rather than flat rates, will be the mecha- nisms of harmonisation, which will proceed somewhat along the lines of the United States model. Such a level, at least, of har- monisation is implicit in the EMU project.
Everywhere else in Europe such assump- tions are obvious. The thought and speech of Herr Lafontaine and his ilk are located much further down the road to the federal superstate that his Green colleague Joska Fischer, the new German foreign minister, helpfully advocated last week. But British politicians (Blair no more than Major) do not feel able to admit even that there is such a thing as the harmonisation process that has been quietly proceeding since the Seventies. So frightened are they of the anti-European Right in the press that EMU is presented as an entirely stand- alone measure, with discrete economic benefits, which Britain will choose whether to buy into depending on whether it works. Until New Labour comes clean about what European integration really means, it will never have the language to rebut the more outlandish statements of its increas- ingly distant socialist cousins on the conti- nent that dare not speak its name.
Sion Simon writes a weekly column in the Daily Telegraph.
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