Sarko the Euro-populist

In what is no doubt part of his resurrection bid, French president Nicolas Sarkozy has proposed a  vague-sounding cap on VAT/TVA as applied to fuel.  He has a point.  VAT is an accelerator of underlying price increases, since the amount applies as a percentage of the net price and not is a fixed monetary amount (like fuel duty).  Thus any increase in the net fuel price gets 21% (in Ireland, for example) added on to it.    On the other hand, he’s also dragging in the EU, since the commission would have to approve a modification of VAT as applied to fuel.  So pending that, all he has is a proposal to “redistribute” the VAT windfall as selective subsidies or transfers.  One wonders to what extent such proposals will generate “me too” proposals in other countries — especially in the UK, where Gordon Brown will surely balk at yet another revenue drain as he deals with a summer of discontent. 

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