Tax & circular economy blog

10 May 2017

Our latest blog on Circulate (a website of the Ellen MacArthur Foundation dedicated to news and insight on the circular economy): 

'Three steps to jumpstart the circular economy'

The circular economy is on the rise. The European Union has embraced the concept and corporations around the world are exploring circular business models. But progression is painfully slow. Still, each year, 6.5 million people are dying from air pollutiona third of all food is wasted and 8 million tons of plastics end up in the oceans. We haven’t scratched the surface yet of the transition towards regenerative economies. The challenge is to speed up the process and break down the barriers for circular entrepreneurship. A major barrier is embedded in our tax code. A three-step update can turn tax into a circular economy catalyst.

Currently, public revenue is largely raised on employment while the use of natural resources remains untaxed or even subsidised.

The 28 EU countries collect some €5,400 billion in taxes each year. On average, more than 50% of tax revenues come from labour (payroll tax, personal income tax and social security contributions). Just 6% of tax revenues are ‘green’ taxes (mainly on energy and mobility).

In the United States, the ratio is 80% labour3% green tax. In Brazil it’s 36% versus 2%. Asian economies also show modest green-tax revenues: just 13% in India, 7% in China and 5% in Japan.

Meanwhile governments around the globe actually subsidise fossil fuel consumption (and thus, pollution). The IEA estimates 2015 fossil-fuel subsidies at $325 billion, more than double the value of renewable energy subsidies.

Introducing better products is harder still when competing with products derived from ‘tax-free’ pollution and subsidised fossil fuels.

At the same time, the tax burden on labour stimulates businesses to minimise the number of employees, even if it means using more natural resources. It’s driving businesses to substitute people with machines and ship commodities and products across the globe.

High labour costs hold back labour-intensive R&D efforts as well as service-oriented business models (such as leasing, repair and maintenance services).

It is clear that, if we are serious about unleashing the full potential of the circular economy, our fiscal systems need an update.

Continue reading at Circulate