EU energy chief says French fuel tax plan flawed

BRUSSELS (Reuters) - French proposals for fuel tax breaks would be less effective than Italian plans for a "Robin Hood tax" on the profits of oil companies, the European Union's top energy official said on Thursday.

At a summit the same day, French President Nicolas Sarkozy plans to ask EU peers to allow France to alter its value-added tax (VAT) on fuel to help fishermen, farmers and truckers hit by soaring bills, a French official said on Wednesday.

"We need to help vulnerable consumers but the VAT measure is not the best one," European Energy Commissioner Andris Piebalgs told Reuters.

Hours before the summit, German Chancellor Angela Merkel told parliament in Berlin: "In our view, financial policy intervention, which is being discussed again and again ... should be avoided."

A British diplomat also rejected the plan, saying: "We don't support the French proposals as currently outlined, on the basis that we see these as market-distorting measures."

Denmark, Sweden and Finland also questioned the plan.

ROBIN HOOD TAX

French ministers have said Europe's failure to respond to distress over petrol prices was one reason why Irish voters rejected the Union's new Lisbon Treaty in a referendum last week, as it made the EU look remote to citizens' concerns.

EU finance ministers this month unanimously reaffirmed their opposition to distortionary tax measures that prevent consumers and businesses adapting to a long-term rise in energy costs.

"You would continue growth of consumption, so it's not the best answer to the political goals we are placed under," Piebalgs said.

He joined European Commission President Jose Manuel Barroso in voicing sympathy over an Italian plan for a "Robin Hood tax" on oil companies' windfall profits.

The Italian cabinet approved on Wednesday a proposal by Economy Minister Giulio Tremonti raising the tax on oil company profits to 33 percent from 27 percent in 2009 to tap earnings due to record-high petroleum prices.

"If the governments, for example, have more revenues from the taxation which can be earmarked for vulnerable consumers ... I think this measure is much faster and can reach the audience we are looking for," Piebalgs said.

Barroso told the Portuguese business daily Diario Economico that the Commission was not opposed to the idea.

Swedish Prime Minister Fredrik Reinfeldt told reporters he would argue against any measure that distorted market mechanisms or removed the price incentive to change consumption patterns.

"The answer cannot be to continue with subsidies or introduce new subsidies that are not based on market price mechanisms because that is sending a signal that we can keep on overusing or even increasing the use of fossil fuel," he said.

He also said Swedes should work longer hours and pay less income tax to be able to afford higher fuel prices.

(Additional reporting by Ingrid Melander)