Opinion of the Economic and Social Committee on the "Impact on competitiveness created by differentials in road transporting vehicle duty and licensing taxation in the EU Member States (Own-initiative opinion)"

(2001/C 260/03)

On 19 October 2000, the Economic and Social Committee, acting under the third paragraph of Rule 23 of its Rules of Procedure, decided to draw up an Opinion on "Impact on competitiveness created by differentials in road transporting vehicle duty and licensing taxation in the EU Member States".

The Section for Transport, Energy, Infrastructure and the Information Society, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 6 June 2001. The rapporteur was Mr Tosh.

At its 383rd plenary session on 11 and 12 July 2001 (meeting of 11 July) the Economic and Social Committee adopted the following opinion unanimously.

1. Introduction

1.1. The ESC is concerned by the differentials that currently exist between Member States' regimes for taxing and licensing vehicles and for levies and charges for infrastructure use. It can be seen that these direct operational tax differentials, together with currently 15 labour market regimes and 15 overall taxation accounts make transport costs, and particularly road transport costs, diverge widely. They are such that regional distortions are an inevitable outcome and could have a negative impact on EU measures and frustrate the creation of a cohesive Single Market. The ESC believes that in order to reduce distortions to competition a more fundamental harmonisation is needed.

1.2. Transport is a production factor that transcends national boundaries. Its capacity to defy "national" embedment extends the opportunity for operators to exploit the open EU market. Some EU-level controls on weights and driving hours have helped make the playing field more level(1).

1.3. Transport modes and their infrastructure rank alongside finance, energy and telecoms in their cross-sectoral reach and impact upon Community production. Typically transport costs for industry amount to 3-9 % of production costs compared to 1-6 % for energy and telecom costs. Individuals' transport costs amount on average to 6 % of net income, which shows the significance upon mobility, both for work and leisure.

1.4. Recent reactions to the "fuel crisis" by transport interest groups across Europe have highlighted the degree of passion and threat to livelihoods. The ESC wishes to table the key aspects of the debate and examine if intervention at EU level is appropriate or necessary. Supply-side fuel price volatility, caused both by fluctuating oil prices and their dollar denominated exchange rate, together with the contraction in overall supply time-frames such as needed by "just-in-time" production and e-business, have exacerbated these trends. The open market has, by and large, removed the protection of "old-fashioned" strategic reserve in the transport loop and systems.

1.5. Member States have unique fiscal regimes. The ESC can only address the competitiveness aspects of differentials. However, where there are intra-Community distortions the ESC should signal its concern. A clear example is the view often relayed by Exchequer Chancellors that high fuel duty levels are a mechanism to moderate behaviour and meet environmentally-motivated emission objectives. This should be accompanied by transparency in the allocation of remedial funds e.g. transport infrastructure, "Mobility to Work" initatives or environmental reform.

1.6. The illegal or abusive exploitation of differentials, e.g. in the form of higher than permitted quantities of diesel transported, and the displacement to "flags of convenience" by operators are other unwelcome manifestations.

1.7. This opinion focuses on the road-haulage sector. In the European Union today, road is the dominant mode of transport. Road freight has almost trebled in Western Europe since 1970. Between 1990 and 1995 road freight in Western Europe grew by 24 % while economic growth was only 4 %. These trends will continue and France, Germany and Italy all expect 30-50 % growth between 1995-2010.

1.8. This opinion considers only inter-country cost differences as generated by differences in their structure of transport-specific taxes and charges which remains a very important factor in determining competitiveness between national hauliers operating in each others markets(2). It ignores the influence of market-generated differences in transport costs. Social and labour aspects and indirect taxes such as those affecting wages and social contributions can exacerbate uncompetitiveness but are not in the scope of this opinion(3). This report also does not broach the additional costs to society in general (pollution, noise, and congestion and damage to infrastructure) caused by more intensive provision of transport services(4). Tackling the unsustainable transport trends is an essential item of the EU's Sustainable Development Strategy(5).

2. Transport-specific taxes and charges

2.1. Transport-specific taxes and charges fall into the following categories:

- vehicle taxes: annual motor vehicle (MV) charges(6). Annual MV charges are levied in all EU States and are sometimes differentiated by type of car or HGV;

- fuel taxes: excise duties on fuel, sometimes differentiated by type of fuel;

- direct charges for the use of the infrastructure: paid at point-of-use, mostly for motorways and for singular passages like bridges and tunnels.

2.2. The April 1999 study of the Committee of Deputies, Group on Road Transport, of the European Conference of Ministers of Transport(7), which was the most recent and comprehensive analysis available, compared Austria, Germany, Spain, France, the Netherlands, the UK, Switzerland and Hungary and looked into the intricacies of the taxation framework. To illustrate:

- all eight countries levy fuel or energy excise duty e.g., diesel duty;

- some levy flat-rate user charges e.g., tolls;

- some rely on local taxes e.g., national licensing fees; and

- some levy variable user charges.

The ESC regrets that comparative data do not exist for all Member States and other European countries and asks the Commission to make more comprehensive data available in a future study.

2.3. Because of the variations in taxation regimes it is impossible to make focused duty comparisons. For the same reason it is not possible to be conclusive on the surpluses or deficits of revenues as against expenditure on infrastructure.

2.4. By 15 September 1998 UK fuel duties were 250 % those of Spain whereas the UK fuel base price was equal lowest with France. The UK's duty rate as a percentage of price before tax was 300 % that of Austria and 240 % that of next ranking France. This abstracted reference is of course selective while linkage of other national fiscal costs with fuel costs is as important as recognition of the commercial reality that purchasing transcends national boundaries.

2.5. The study shows the territorial structure and exhibits the divergent characteristics of the taxation base. The UK system is significantly based on vehicle taxation and therefore nationality, whilst Spain and France are more "territorial" and rely on direct charges for revenue.

2.6. Total taxation if defined by tonne-km, shows the UK to lead the field in total tax recovery, being 230 % ahead of the lowest: Austria. France and the UK are distinctly ahead (by 200 %) in the application of composite tax rates.

2.7. However, the cost of other inputs, particularly on the labour side, is lowest amongst EU countries in the UK with France and the Netherlands 150 % above.

2.8. Finally the study compares the respective composite marginal effective tax rates (METR), which distils the applicable tax rates for each production input - labour, capital and gross external charges. This weighted METR for road-related transport service sees the UK and France lead the field at a level of 45 % with the Netherlands at 32 % and Switzerland at 28 %.

2.9. When the study addresses the relationship or net balance of road and rail infrastructure spend over revenues, the study shows that some countries such as Austria and the Netherlands transfer huge surpluses, as high as 160 % of that infrastructure spend, into general revenue to subsidise other sectors of the economy, whilst France and Germany zero balance or slightly subsidise infrastructure expenditure. Worth noting also is the significant distortion brought about by the universal failure to internalise external costs such as those for congestion and accidents, a practice which can be considered to entail a degree of "hidden" subsidisation which in effect distorts these comparisons.

2.10. Finally, the METR corrected for gross book transfers, is indicative, but not conclusive - it deducts expenditure but not all external costs. The range of rates shows wide divergence with the UK, Germany and France ahead at 40 % taxation level and Austria down at 17,5 %.

2.11. The initial conclusions of this CEMT study hold that the METR "acts like a mirror" to reflect differences, and combines:

(a) the share of input costs to each transport mode and

(b) the various tax rates applicable to these inputs (in each country).

2.12. It clearly suggests that:

- for road modes the relationship between (a) and (b) is inverse - that is the highest rate of tax applies to the input with the lowest share in cost. This is not the case for rail where electricity attracts only residual fuel taxation and labour taxation dominates;

- from one country to another the fuel or energy rates alone are not good enough for identifying differences in road and rail transport costs;

- the accounting data setting out differences in transfers between the road and rail sectors need to reflect total marginal social costs including external costs, for comparisons to be worthwhile. The METR feature of positive and negative fiscal transfers renders these calculations "insensitive".

2.13. The above summary cannot do complete justice to the study, but reveals the complexity of taxation and expenditure in the transportation charging arena and importantly signals the diversity in allocation of income, infrastructure spend and transport policy.

2.14. The average contributions of the different taxes and charges to the total revenue from road taxes and charges were, for the EU countries and Switzerland(8) - vehicle charges: 25 %; fuel taxes: 70 %; and road charges: 5 %. However, the size and importance of these charges vary greatly across the countries(9). Because of these inter-country differences in charging structure there are differences in transport costs - both in terms of overall cost and in terms of the components of cost - between the EU countries(10).

2.15. Because of these cost distortions, road haulage operators respond by locating where costs are lowest and refuelling where fuel prices are lowest. These distortions in the market for transport point to the importance of harmonising road taxes and charges so as to enhance inter-country competitiveness in the provision of transport services.

3. An illustrative example

3.1.

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3.2. Neither country has significant road charging. It is clear that differentials in duties are forcing operators to consider their "flag" registration, though it is not a simple matter of re-registration in the lowest cost country. For this arrangement to succeed the haulier would need to be able to demonstrate "base" qualification and satisfy its EU interpretation. The comparison is further frustrated by the exchange-rate fluctuations that impact, on a daily basis, where the Sterling/Euro relationship has changed significantly.

3.3. A number of distinct unique regional distortions can be identified, where the issues are shaped by regional factors. A case study is shown, but could, with different relationships apply in the Balkans, in the Mediterranean or Scandinavia, or as between Belgium and Luxembourg.

4. Enlargement

4.1. Accession countries appear to offer a considerable competitive threat to the present EU road-haulage industry. While EU-based operators will do better in the logistics side of road transport former CEEC operators will dominate general haulage. In particular East-West traffic is 80 % dominated by CEEC where truck operating costs (according to Phare) average two-thirds of EU levels. CEEC average wages are at one-fifth of the EU's. Fuel costs can be above EU average, as in Hungary, or only 25 % of EU-average as in Albania. Similarly, annual truck taxes range from 300-430 % of EU average in the Czech Republic to only 8 % of EU average in Bulgaria.

4.2. However, productivity for trucks in the accession countries is 12 % below EU levels. The EU average kilo-tonne costs EUR 0,80, 10-15 % higher than CEEC haulier charges, but costs are expected to converge as EU "acquis communautaire" is adopted(11).

5. Observations

5.1. The transport debate in general needs to rise to the top of the socio-economic agenda to ensure that its peculiar impact upon 21st century society is recognised and that a political debate takes place. This concerns in particular management practices and principles for determining infrastructure and modal investment and provisions that align sustainable economic growth with energy usage and enlargement.

5.2. Member States must recognise their responsibility to oversee and if necessary decide key considerations regarding regulation, certification, harmonisation of operating standards, safety concerns, and even basic matters affecting the evolution of transport logistics.

5.3. The EU must address the dysfunctional taxation elements within and between Member States for all transport infrastructure and modes and seek to reduce the wide variations that exist and so facilitate the creation of a level playing field for all transportation.

5.4. A move towards direct charges could create a more transparent and representative regime than is achieved by taxation and duty alone and help apply charges most effectively to those who will pay and benefit(12).

5.5. EU funded research and evaluation should inform and influence rules intended to take the application of the method of marginal costs into consideration on a coordinated basis. The amount of marginal costs differ between regions.

5.6. There are many suitable local solutions to the removal of disparities and market distortions. Inter-regional fora are often the proper vehicle for such problem-solving. In certain cases and under certain circumstances successful co-ordination of the local (inter-state) disparate decisions would assure zone harmonisation and sector alignment and provide an alternative to EU standardisation.

5.7. The yo-yo price fluctuations induced by ad-valorum fuel taxation bring unreasonable disturbance to the economy and mobility and should be replaced by a flat-rate levy.

6. Recommendations

6.1. The ESC would wish to urge the EU-wide adoption of taxation and charging structures that are "competitiveness-enhancing".

6.2. The ESC urges the Commission and Member States to provide comparative data which are currently not available.

6.3. Taxes, which are based upon nationality (for example, vehicle taxes), are "competitiveness retarding" since increases or decreases in these taxes by any one country hurt or benefit only those transport firms who are nationals of the country. Consequently, the competitive position of that country, relative to others, is altered. On the other hand, charges, which embody a high degree of territoriality (for example, motorway tolls), are "competitiveness-enhancing" since increases or decreases in these charges by any one country hurt or benefit all transport firms, irrespective of nationality, who use the relevant roads in that country. Consequently, the competitive position of that country, relative to others, is (broadly) unaltered.

6.4. In order to promote the creation of a level playing field, the ESC believes there should be a shift away from taxes (which embody a high degree of nationality) towards charges (which contain a high degree of territoriality).

6.5. It is of the most fundamental concern to the ESC how transport can make its contribution to meet the Kyoto protocol obligations. The response of the US administration to withdraw support for Kyoto is seen by the Committee to be less than responsible. Harmonisation of transport-specific taxes and charging systems should, in addition to creating a level playing field, continue to improve the environmental impact of transport services what would help meet the Kyoto protocol obligations.

6.5.1. In this respect, the ESC recommends the development of a fiscal environment which facilitates investment in research or technological innovation to reduce CO2 emissions and the problems of traffic congestion.

6.5.2. At European level, the ESC recommends the express inclusion, among the thematic priorities of the VI R & D Framework-Programme 2002-2006, of transport related technologies. It stresses the importance of the Galileo Programme, for a safe, competitive and environmentally-friendly European integrated logistics system.

6.5.3. A harmonisation of the different taxation and charging systems should take into account environmental aspects and address also the challenge of depleting fossil fuel stocks and dependence on external suppliers for the EU now, and increasingly after enlargement. Setting clear standards for all sectors in respect of fuel consumption, load and delivery performance and conservation will calm feelings in the road-haulage sector which perceives itself as the main target for environmental reconstruction.

6.5.4. The ESC is concerned that proposed unilateral taxation, specially on CO2, in Member States will permit external operators from countries whose standards and attitudes to good practice fail to meet those reflected in Member States' taxation regimes to enjoy transport cost advantages in bringing goods to market.

6.6. Demand for transport services is relatively insensitive to the level of taxes and charges. Even large increases in fuel prices have relatively little effect on quantities transported. A structure of duties that offers incentives to "environmentally-friendly" driving could reduce fuel consumption without a proportionate decrease in the miles driven.

6.7. The Committee suggests that:

6.7.1. The annual MV charge should discriminate between types of vehicles according to their environmental impact and infrastructure charge.

6.7.2. Road charges should discriminate in favour of "road-friendly" vehicles given the fact that road maintenance expenditure is often the single largest item in the road budget and heavy vehicles inflict relatively more road damage. Replacing the national fleet with "road-friendly" air or equivalent suspension systems could increase pavement life between 15 %-60 %(13). Price incentives could encourage the take-up of road-friendly suspensions by haulage firms.

6.8. Although most countries differentiate fuel duties according to the environmental impact of the fuel, cross-border fuel tourism limits the scope for action for smaller countries. As there is still limited possibility for harmonisation in the level duties the inter-fuel differentials in duty should be harmonised with each country setting its own benchmark level of duty.

6.9. Modern technologies can contribute to simple and efficient collection of charges. The ESC therefore urges the Commission to strengthen the financial support for research into new technological possibilities and implementation of new methods.

Brussels, 11 July 2001.

The President

of the Economic and Social Committee

Göke Frerichs

(1) See ESC opinion on the Proposals for Council Directives concerning certain aspects of the organisation of working time to cover excluded sectors and activities, OJ C 138, 18.5.1999, and ESC opinion on the Proposal for a Directive of the European Parliament and of the Council amending Council Directive 96/53/EC laying down for certain road vehicles circulating within the Community the maximum authorised dimensions in national and international traffic and the maximum authorised weights in international traffic, OJ C 123, 25.4.2001.

(2) Harmonisation in Road Transport: Efficient Transport Taxes and Charges, Conclusions and Recommendations, CEMT/CM(2000)14/FINAL.

(3) See ESC opinion on the Proposals for Council Directives concerning certain aspects of the organisation of working time to cover excluded sectors and activities, OJ C 138, 18.5.1999, and ESC opinion on the Proposal for a Directive of the European Parliament and of the Council amending Council Directive 96/53/EC laying down for certain road vehicles circulating within the Community the maximum authorised dimensions in national and international traffic and the maximum authorised weights in international traffic, OJ C 123, 25.4.2001.

(4) See ESC opinions on the White Paper "Fair Payment for Infrastructure Use: A phased approach to a common transport infrastructure charging framework in the EU" COM(98) 466 final, OJ C 116, 28.4.1999 and the Green Paper "Towards fair and efficient pricing in transport - Policy options for internalizing the external costs of transport in the European Union" (COM(95) 691 final), OJ C 56, 24.2.1997.

(5) Communication from the Commission "A Sustainable Europe for a Better World: A European Union Strategy for Sustainable Development - The Commission's proposal to the Gothenburg European Council", ESC opinion in elaboration.

(6) We do not consider sales tax on new vehicles.

(7) CEMT/CS/TR(98)/rev.

(8) For details of these charges across the EU, see Variabilisation and Differentiation Strategies in Road Taxation, INFRAS, Zurich, 2 June 2000.

(9) For example, the UK could be regarded as a "fuel duty-oriented" country while France, Italy and Spain could be regarded as "toll-oriented" countries.

(10) First, differences in transport-specific taxes and charges are not the only source of tax-induced differences in transport costs. Inter-country differences in taxes imposed on the labour inputs (income tax; social security contributions) and the capital inputs (allowable depreciation deductions against tax) that are used in the production of transport services also contribute to cost differences.

(11) Source: Eurostat.

(12) Communication from the Commission "A Sustainable Europe for a Better World: A European Union Strategy for Sustainable Development - The Commission's proposal to the Gothenburg European Council", ESC opinion in elaboration.

(13) OECD Observer, 26 January 2001.