Stefan Speck; September 25-28, 2019; Limassol, Cyprus; 20 th Global Conference on Environmental Taxation Environmental Tax Reform – A Policy Tool Applicable For The Next Decades?
Environmental / ecological / green tax reform Environmental tax reform (ETR) is a reform of the national tax system where there is a shift of the burden of taxation from conventional taxes , for example on labour, to environmentally damaging activities , such as resource use or pollution. The burden of taxes should fall more on 'bads' than 'goods' so that appropriate signals are given to consumers and producers and the tax burdens across the economy are better distributed from a sustainable development perspective. (EEA, 2005) Tax-shifting programme (not necessarily revenue neutral) Design and the selection of instruments varies and depends on prevailing economic, social, institutional and political conditions of the countries – as seen in the countries implemented ETR: Denmark, Sweden, UK, Germany, British Columbia (Canada), etc.
Environmental/labour tax revenue in the EU in 2017 Revenue from income tax, social contributions and environmental tax in 2017; % of total tax revenue 80,0 70,0 60,0 50,0 40,0 30,0 20,0 10,0 0,0 Tax on indvidual or household income Net social contributions environmental tax Source: Eurostat; https://ec.europa.eu/eurostat/statistics-explained/index.php/Tax_revenue_statistics#General_overview (income: D.51a+c1 of which, taxes on individual or household income incl. holding gains; net social contribution: D.61 Net social contributions)
Env. tax revenue as % of total tax revenue (incl SSC) EU-28 and frontrunner env tax countries (Denmark, Sweden) and Norway – flat or dropped; eastern EU MS – strong increase (Estonia); Cyprus – high share; Greece – back at high share 14 12 Source: Eurostat 10 8 6 4 2 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 EU-28 Czechia Denmark Estonia Greece Sweden Norway Cyprus
Trend in environmental tax revenue Norway Environmental tax revenue (constant 2010 Euro; 1995 = 100) 200 180 160 140 120 100 80 60 40 20 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 ¬ Petrol tax ¬ Diesel tax Environmental related taxes , total Energy taxes, total ¬ Tax on electricity ¬ Tax on C02 emissions Transport taxes, total Source: Statistics Norway and Eurostat; Share of petrol dropped from 28% to 7% (1995-2017); diesel increased from 8% to 13%; electricity stable at 13/14%. Transport increased from 37% to 48% (2006) and dropped to 38% and total energy tax revenues 60% - 47% (2006) - 57% (total environmental tax revenues); total tax revenue increased by about 30% and GDP by about 54%; loss of revenues from EV – policies: 5-6 bill NKR (about 6 % of total env tax revenues) with increasing trend
‘A Scenario’: how to get a 10 % env tax share of total tax in 2025 share environmental tax to total tax revenue in 2017 6.14 EU-28 8.13 Denmark 4.62 Germany 10.21 Greece 8.62 Cyprus 8.8 Estonia 11.23 Latvia 4.41 Luxembourg 4.87 Sweden 5.95 Norway Back-of-the-envelop calculation: Annual increase in environmental tax revenues generating a share of 10 % of total tax revenue in 2025?
‘A Scenario’: how to get a 10 % env tax share of total tax in 2025 average annual share environmental tax average annual increase in to total tax revenue in increase in total tax environmental tax 2017 revenue 2008 - 2017 revenue 2008 - 2017 6.14 EU-28 1.2% 1.4% -0.4% 8.13 Denmark 1.0% 4.62 Germany 1.6% -0.7% 10.21 Greece -0.8% 4.2% -0.3% 8.62 Cyprus -0.2% 8.8 Estonia 1.9% 3.9% 11.23 Latvia 1.6% 6.4% -2.6% 4.41 Luxembourg 2.7% -0.2% 4.87 Sweden 1.9% 5.95 Norway 0.5% -0.2% Back-of-the-envelop calculation: Annual increase in environmental tax revenues generating a share of 10 % of total tax revenue in 2025? Underlying assumption – all guestimates are done in constant 2010 prices! 1. Total tax revenue increase by annual average growth rate of period 2008-2017 up to 2025
‘A Scenario’: how to get a 10 % env tax share of total tax in 2025 average annual average annual increase in required annual share environmental tax to increase in total tax environmental tax increase for 10 % share total tax revenue in 2017 revenue 2008 - 2017 revenue 2008 - 2017 in 2025 6.14 EU-28 1.2% 1.4% 8.0% -0.4% 3.9% 8.13 Denmark 1.0% -0.7% 12.4% 4.62 Germany 1.6% 10.21 Greece -0.8% 4.2% -0.2% 8.62 Cyprus -0.2% -0.3% 1.6% 3.9% 3.7% 8.8 Estonia 1.9% 11.23 Latvia 1.6% 6.4% 0.3% 4.41 Luxembourg 2.7% -2.6% 14.2% -0.2% 11.6% 4.87 Sweden 1.9% 5.95 Norway 0.5% -0.2% 7.2% Back-of-the-envelop calculation: Annual increase in environmental tax revenues generating a share of 10 % of total tax revenue in 2025? Underlying assumption – all guestimates are done in constant prices! 1. Total tax revenue increase by annual average growth rate of period 2008-2017 up to 2025 2. How high environmental tax revenue would have to be to reach a 10 % share environmental tax-to-total tax revenue in 2025 Difference between 2025 and 2017 tax revenue – what would be the annual average growth rate reaching the 10% share. 3.
Carbon/energy taxation in the future Tax base erosion of energy/CO2 dimension (relevance of transport fuels) was so far not an issue because (1) no substitution possibilities; (2) price elasticities are low and long-run demand for fuels is inelastic; (3) income elasticity less than one. Situation has changed as meeting reduction targets will lead to a major reduction in energy consumption. Denmark - goal for 2050 is that all energy consumption, including the transport sector, will be based on renewable; Norway – climate neutral 2030; Sweden – 2045 climate neutral; Germany - Climate Action Plan 2050 – transport GHG emission reduction target corresponds to annual average reduction by about 3% (2016-2030); Finland – net zero GHG emissions in 2035; UK – net zero GHG emission in 2050 Programmes of a ban of sales of internal combustion engine (ICE) / phasing out fuel-powered transportation: Norway 2025, Denmark 2030, Sweden 2030, France 2040, UK 2040, etc. what are the fiscal implications?
UK – fuel duty revenues projections OBR, Fiscal Sustainability Report 2014 https://cdn.obr.uk/41298-OBR-accessible.pdf More efficient – new cars reach 50 g/km in 2030 and towards zero in 2050; fuel duty rate – 3.3 per cent p.a.; oil price increase by 2.2. per cent p.a.; increase in total mileage driven (less efficient scenario - absence of regulation beyond 2020)
A broader approach towards environmental taxation in the context of sustainability transition is necessary by integrating • demographic change (ageing and shrinking population/labour force) -- RELEVANT FOR THE DISCUSSION OF ENVIRONMENTAL TAX REFROM • technological change (automatisation/ digitalisation / industry 4.0) • fiscal sustainability and sustainable finance Forthcoming EEA report ’Sustainability transition in Europe in the age of demographic and technological change. Implications for fiscal revenues and financial investments’
Ageing population in Europe The age structure will have major implications as Europe is turning increasingly grey (EC, 2015) and the budgetary implications as public age-related expenditure (pension, health care, long-term care and education) are projected to increase by about 2 pp of GDP in 2050 (EC, 2018) i.e. approx. 5.5 percentage points of tax revenue at EU-28 level. Shrinking labour force with implications erosion of labour tax base; impact on growth (GDP, jobs – labour productivity, etc.) and environment Expenditure patterns will differ because of demographic changes – possible reduction in VAT revenues Shrinking populations pose a formidable fiscal challenge. …. In particular, a declining global population will, other things being equal, reduce energy consumption and pollution (IMF, 2015)
Population projection (1) Total population -- elderly population (65 years and over) -- labour force (age between 15 and 64 years) Large differences between EU Member States! Trend in old age people (65 and over) - Total population – change compared compared to 2016 (2016=1) to 2016 (2016=1) 1,20 0,40 1,00 0,30 0,20 0,80 0,10 0,60 0,00 0,40 -0,10 0,20 -0,20 0,00 -0,30 2020 2030 2040 2050 Source: EC, 2018 Ageing Report 2020 2030 2040 2050
Population projection (2) Number of person aged 15-64 / Demographic change of population between 15 and population aged 65 and over 64 - compared to 2016 data (2016=1) 0,30 5 4,5 0,20 4 0,10 3,5 0,00 3 EU-28 Bulgaria Germany Spain France Croatia Italy Poland Sweden United Cyprus Kingdom -0,10 2,5 2 -0,20 1,5 -0,30 1 -0,40 0,5 0 -0,50 EU-28 Bulgaria Germany Spain France Croatia Italy Poland Sweden United Cyprus Kingdom 2020 2030 2040 2050 2016 2020 2030 2040 2050 Source: EC, 2018 Ageing Report
Fiscal implications of demographic change: Germany http://publica.fraunhofer.de/eprints/urn_nbn_de_0011-n-4176903.pdf Fraunhofer and Prognos, 2016 Herausforderungen für das Steuerrecht durch die demografische Entwicklung in Deutschland – Analyse einer Problemstellung
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