Carmakers negotiate a maze of European green taxes

By John Thornhill and Haig Simonian
Published: July 4 2008 03:00

The French love tinkering with their tax regime for the purposes of social engineering. The state provides fiscal incentives to buy property, hire home help and have babies. But the government is now becoming increasingly enthusiastic about using taxes to persuade consumers to turn green. In particular, it is extending its carrot-and-stick "bonus-malus" system from cars to a range of consumer products including electronic goods.
The idea is to reward consumers for making sound environmental choices while punishing those who do not. So, for example, drivers who buy a Toyota Prius 1.5 litre hybrid car with low CO 2 emissions will benefit from a €2,000 ($3,140) bonus. Those who buy a petrol-guzzling sports utility vehicle will have to pay an initial "malus" of €2,600 - and, according to government plans announced this week, an additional tax every year amounting to about 10 per cent of this original charge. Since its introduction at the start of the year, the scheme has had a striking impact on new car sales - although surging petrol prices have also been a big factor. Small car sales have risen 50 per cent in the first half of the year in France, while those of the most heavily polluting have fallen by 40 per cent.
The "bonus-malus" scheme is widely viewed as a good thing, but it has its critics. Environmentalists argue it is not grand enough to meet the scale of the challenge. Car associations say it unfairly penalises those who can only afford second-hand cars. Liberal economists fear it could lead to backdoor protectionism. Finance officials worry the scheme is proving too popular. The new tax regime was supposed to be revenue neutral. Instead, it is costing the government money.
Car manufacturers are ambivalent about its effects. The announcement of the government's expanded scheme initially knocked the share prices of French car manufacturers. But Renault and PSA Peugeot-Citroën both argue they are well placed to benefit from the scheme thanks to their range of low-emission cars.
What is more worrying is that a patchwork of different environmental tax regimes is emerging around Europe as more than a dozen countries have introduced CO 2 -based car taxes. It would certainly help business if EU partners could agree a common set of rules to apply across the single market. That's one more priority for President Nicolas Sarkozy now that France has taken up the EU's rotating presidency.
Austria awaits verdict
Whatever the verdicts, today's conclusion of the mammoth Bawag trial in Vienna will leave someone fuming. If the judge convicts the defendants and proposes tough sentences for the nine former executives of the Austrian trade union-owned bank and their key investment adviser, the accused will immediately claim they never received a fair trial because of adverse publicity. If they are exonerated, however, there will be popular outcry that no one has been pinpointed for the bank's travails.
Ironically, the verdicts look set to coincide with a separate investigation in New York into Refco, the failed securities broker with which Bawag was once associated. Recapitulating the complex affair in less than three volumes is not easy. In essence, Bawag's problems emerged in October 2005, when a trio of senior managers made an emergency €350m loan to Phillip Bennett, Refco's founder and chief executive, one day before the latter's arrest.
Investigations under new management unearthed an astonishing trail of losses on other transactions that had been hidden for years to prevent a run of confidence in Austria's fourth-biggest bank. The unorthodox procedure had been approved by Bawag's auditors because the unions were prepared to stand as lender of last resort. The scandal prompted top level arrests, including a nail-biting extradition fight by Helmut Elsner, Bawag's autocratic former chief executive. At one stage, Mr Elsner's luxury retirement villa in the south of France was virtually surrounded by Austrian journalists. His affairs remain highly controversial: his wife is still titular owner of the lavish flat, with swimming pool, built for him above Bawag's central Vienna headquarters and now subject of a bitter ownership battle with the bank's new bosses. Bawag's sale early last year to Cerberus, the US private equity group, helped to restore stability. Modest central and eastern European operations - arguably the jewels in Bawag's crown - and non-core assets have been sold, and efforts made to improve earnings in the core Austrian retail business under David Roberts, a former top Barclays manager.
But the trial, which began last July and was initially expected to close within weeks, has dragged on. Periodic twists and occasional dramas have still not adequately explained how the bank managed to lose more than €1.4bn ($2.2bn). But the main actors have been identified. Now all Austria wants is the verdict.
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Copyright The Financial Times Limited 2008