- European Commission
- UN Secretary-General Antonio Guterres
- European Parliament
- Feike Sijbesma (CEO Royal DSM)
- The World Resources Forum
- World Bank
- The Ellen MacArthur Foundation
- Kate Raworth
- Joseph Stiglitz
- Club of Rome
- Eckart Wintzen
- The New Climate Economy
- George Shultz and Gary Becker
- HRH Prince Carlos de Bourbon de Parme
- Ministry for the Environment of Italy
- Herman Daly
- Gilbert Metcalf
- Paul Hawken, Amory Lovins, L. Hunter Lovins
- Gregory Mankiw
- Al Gore
- Prof. Dr. Friedrich Schmidt-Bleek
- Lester Brown
- Walter Stahel
- The UK Green Fiscal Commission
- Dutch government
“The tax burden in the euro area is relatively high and skewed towards labour; a shift away from labour to tax bases that are less detrimental to growth, such as property, consumption or environmental taxes, could strengthen labour supply and demand.”
From: European Commission (2018), Recommendation for a Council Recommendation on the economic policy of the euro area.
“The overall tax burden in the euro area is skewed towards labour (…). The tax burden on labour, measured by the tax wedge, is among the highest internationally. Reducing the tax burden on labour, particularly for low income and second earners, can improve labour demand and supply. To finance its reduction, the tax burden could be shifted towards tax bases that are less detrimental to growth, including consumption taxes, recurrent property and environmental taxes, while taking into account the redistributive impact of taxation systems.”
From: European Commission (2018), Analysis of the Euro Area economy. Accompanying the document Recommendation for a Council Recommendation on the economic policy of the Euro Area. Commission Staf Working Document.
“Environmental taxation, carbon pricing systems and revised subsidy structures should play an important role in steering this transition. Taxation is amongst the most efficient tools for environmental policy. Therefore, taxes and carbon pricing should be employed to account for negative environmental impacts and focus on increasing energy efficiency, reducing greenhouse gas emissions and enhancing the circular economy.”
“Unless adequate regulatory or mitigating measures are in place, the transition bears the risk to disproportionally affect people with low income, leading to the emergence of some form of energy poverty. This risk has to be addressed. In most Member States, vulnerable customers can benefit from regulated energy tariffs, but these tariffs can distort market signals and reduce the effectiveness of policies on energy efficiency or hamper the deployment of technologies such as smart meters. These social issues are generally better addressed through the social policy and welfare systems, the financing of which could benefit from tax shifts and revenue recycling.”
From: European Commission (2018), A Clean Planet for all A European strategic long-term vision for a prosperous, modern, competitive and climate neutral economy.
“Further efforts are necessary to address high levels of labour taxes while safeguarding the necessary revenue for public policies, to increase incentives to work and support job creation for more vulnerable population groups.”
From: European Commission (2018), Communication From The Commission To The European Parliament, The European Council, The Council, The European Central Bank, The European Economic And Social Committee, The Committee Of The Regions And The European Investment Bank.
“Reduce the tax wedge, especially for low-income earners, by shifting the tax burden to sources of revenue less detrimental to growth.”
From: European Commission (2018), Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Austria and delivering a Council opinion on the 2018 Stability Programme of Austria
“Reduce disincentives to work more hours, including the high tax wedge, in particular for low-wage and second earners.”
From: European Commission (2018), Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Germany and delivering a Council opinion on the 2018 Stability Programme of Germany
“Shift taxation away from labour, including by reducing tax expenditure and reforming the outdated cadastral values.”
“Reduce taxation for low-income earners by shifting it to other sources, particularly capital and property, and by improving tax compliance.”
From: European Commission (2018), Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Latvia and delivering a Council opinion on the 2018 Stability Programme of Latvia.
“Unlock labour reserves through improving the quality of active labour market policies. Improve the adequacy and coverage of social assistance and unemployment benefits.”
From: European Commission (2018), Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Hungary and delivering a Council opinion on the 2018 Stability Programme of Hungary.
“Labour tax cuts can be a tool promoting higher levels of employment. Shifting taxation to other tax bases is one possible option. Tax bases less detrimental to growth include consumption taxes, housing taxes & environmental taxes.”
“Labour tax cuts can be a tool promoting higher levels of employment, in particular where high labour costs discourage hiring (i.e. labour demand issues) or where incentives to take a job are low when work does not pay (i.e. labour supply issues). Targeted labour tax reductions for vulnerable and more responsive groups, such as low income earners or second earners, can help raise employment levels while also reducing poverty and social exclusion.”
“A third type of taxation that could be considered as a means of compensating for labour tax cuts is environmental taxation. This can also contribute to fairness by pricing in the negative externalities of polluting or other damaging activities and helping to incentivise behavioural change.”
From: European Commission (2017), European Semester Thematic Factsheet Taxation.
“Reduce the tax wedge on labour, particularly on low-earners, in a budgetary-neutral way to foster job creation”.
From: Council of the European Union (2016), European Semester 2016: Council Recommendation on the economic policy of the euro area.
“The tax burden on labour should be further lowered. Many Member States have taken measures to reduce labour taxation. For example, Estonia and France took steps to reduce labour taxation on low income earners. Moreover, labour taxation reforms have been implemented in some Member States characterised by high unemployment rates, such as Belgium, Spain and Italy. However, the tax wedge on labour, in particular on low incomes, remains high in several Member States and has even increased in some countries. (…) More progress needs to be made on reducing the tax burden on labour.”
From: European Commission (2016), COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP. 2016 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU).
“The recent growth in employment can be fully attributed to an increase in the number of people employed on temporary contracts and the number of self-employed. Although the Netherlands has taken measures to address the issue, a more comprehensive approach is needed. (…) Self-employed people without employees are more often under-insured against disability, unemployment and old age, which could affect the sustainability of the social security system in the long run.”
From: Council of the European Union (2016), Recommendation for a COUNCIL RECOMMENDATION on the 2016 national reform programme of the Netherlands and delivering a Council opinion on the 2016 stability programme of the Netherlands.
“Shifting taxes away from labour should be a priority for several EU Member States, in view of its positive impacts on labour supply and demand. EU Member States may want to reduce their level of labour income taxation in a budget neutral way, implying a shift towards tax bases that are less harmful to growth while taking into account redistributive effects and impacts on social security systems. At the macroeconomic level, recurrent property taxes, consumption taxes, and environmental taxes are found to be the least detrimental to growth.”
From: European Commission (2016), European Semester Thematic Factsheet Taxation.
“Priority objective 6: To secure investment for environment and climate policy and address environmental externalities: 76. The Union and its Member States will need to put in place the right conditions to ensure that environmental externalities are adequately addressed, including by ensuring that the right market signals are sent to the private sector, with due regard to any adverse social impacts. This will involve applying the polluter-pays principle more systematically, in particular through phasing out environmentally harmful subsidies at Union and Member State level, guided by the Commission, using an action-based approach, inter alia, via the European Semester, and considering fiscal measures in support of sustainable resource use such as shifting taxation away from labour towards pollution. As natural resources become increasingly scarce, the economic rent and profits associated with their ownership or exclusive use may increase. Public intervention to ensure that such rents are not excessive and that externalities are taken into account will lead to a more efficient use of those resources and will help to avoid market distortions, as well as generate public revenue. (…) Other market-based instruments, such as payments for ecosystem services, should be used more extensively at Union and national level to incentivise private sector involvement and the sustainable management of natural capital.”
From: European Commission (2015), Environment Action Programme to 2020.
“Environmentally-related taxes (92) can be used by governments both as a way of raising revenue and to help the country achieve its environmental objectives. These two aims must therefore be reconciled when designing environmentally- related tax policies. (…) environmentally-related taxes are amongst the taxes least detrimental to growth and are considered to be a source of revenue that can, for example, be used to help finance a reduction in the tax burden on labour.”
From: European Commission (2015), Tax Reforms in EU Member States 2015. Tax policy challenges for economic growth and fiscal sustainability.
“One of the biggest tax policy challenges in Europe is that governments tend to rely too much on labour taxes. But overdependence on labour taxes can be a disadvantage when they make it too expensive to employ people. Passing some of the taxes to other things, such as pollution, could help to accelerate employment and economic growth. Smart taxation is a winning strategy.”
From: European Commission (2015), Smart Taxation: a Winning Strategy. Video.
“Reduce the tax wedge on labour, particularly on low-earners, in a budgetary-neutral way to foster job creation”.
From: European Commission (2015), Recommendation for a COUNCIL RECOMMENDATION on the economic policy of the euro area.
“While the labour market situation is gradually improving, not least due to reforms implemented in several Member States in recent years, unemployment is still intolerably high (9.6%). Poverty and marginalisation have increased. (…) Although many Member States recognise the need to shift taxation away from labour and to eliminate distortions in the tax systems, progress has been slow. (…) High levels of labour taxation, particularly on low income earners, may inhibit job creation and incentives to participate in the labour market.”
From: European Commission (2015) Communication from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic And Social Committee, the Committee of the Regions and the European Investment Bank. 2015 European Semester: Country-specific recommendations, Brussels.
“The Belgian tax system is characterised by a high overall tax burden, relatively high rates, and narrow bases. The tax burden is heavily skewed towards labour. This results in high labour costs, which discourage job creation, and large tax wedges, which contribute to unemployment traps. In addition, partly to alleviate the high tax rates, tax bases are generally eroded by numerous specific exemptions, deductions, reduced rates, and tax expenditures, which create efficiency losses and introduce distortions and possible loopholes. Certain features of the tax system are environmentally harmful. Given these weaknesses, Belgium has been repeatedly advised to simplify and redesign its tax system in order to rebalance the tax burden, close tax loopholes, and reduce the sometimes harmful differentiation created by taxation niches. So far, limited progress has been made towards a comprehensive tax reform entailing, in particular, a shift from labour towards less growth-distorting tax bases. Tax bases with scope for broadening include environmental and consumption taxes and certain types of financial income. Combining a shift away from labour with tax-base broadening (reviewing existing tax provisions, subsidies, exemptions, and deductions) could improve the overall balance and fairness of the tax system, support employment, competitiveness and social and environmental objectives, and counter tax evasion and aggressive tax planning.”
From: European Commission (2015), Recommendation for a COUNCIL RECOMMENDATION on the 2015 National Reform Programme of Belgium and delivering a Council opinion on the 2015 Stability Programme of Belgium, Brussels.
“Taking into account compulsory non-tax payments, the tax wedge in the Netherlands is significantly higher than the EU average and there is scope to shift taxation to factors less detrimental to growth. The envisaged tax reform would contribute to increasing labour market participation.”
From: European Commission (2015), Recommendation for a COUNCIL RECOMMENDATION on the 2015 National Reform Programme of the Netherlands and delivering a Council opinion on the 2015 Stability Programme of the Netherlands, Brussels.
“the scope fo shifting taxes to more growth-friendly revenue sources appears underused. (…) The tax wedge for workers earning between 50 % and 67 % of the average wage has remained largely unchanged since 2001 and remains among the highest in the EU. The recent reforms to social insurance systems are likely to involve a further rise in contribution rates and increase the tax wedge further. This would have potentially negative effects on labour market participation and disposable income. (…) Increase incentives for later retirement. Take measures to reduce high labour taxes and social security contributions, especially for low-wage earners, and address the impact of fiscal drag. Revise the fiscal treatment of mini-jobs to facilitate the transition to other forms of employment.”
From: European Commission (2015), Recommendation for a COUNCIL RECOMMENDATION on the 2015 National Reform Programme of Germany and delivering a Council opinion on the 2015 Stability Programme of Germany.
“Tax revenues could be increased by reducing the extensive use currently made of reduced VAT rates and by increasing the efficiency of the tax administration. (…) Labour market segmentation persists in Poland. The incidence of temporary contracts is the highest in the EU, while the transition rate from temporary to permanent employment is low and the wage differential the highest in the EU. (…) The social security privileges granted to farmers and miners continue to hamper professional mobility and impose significant costs on public finances. These preferential schemes deter people from moving to more productive sectors, create hidden unemployment and, due to low contributions, are heavily subsidised by taxpayers.”
From: European Commission (2015) Recommendation for a COUNCIL RECOMMENDATION on the 2015 National Reform Programme of Poland and delivering a Council opinion on the 2015 Convergence Programme of Poland.
“Some progress was made in the area of taxation, with a comprehensive tax reform being introduced to make the tax system simpler and more conducive to growth and job creation. A tax reform was adopted on 20 November 2014, to enter into force in January 2015, and covers personal and corporate income taxation. Some progress was also made with regard to the fight against tax evasion, but no progress was seen in the area of environmental taxation. (…) Youth unemployment in Spain remains very high (over 53 %)and the early school leaving rate is one of the highest in the EU. (…) It therefore remains essential to identify new sources of funding, ensure effective and efficient use of resources, set up the new research agency and promote measures to make the business environment more innovation-friendly.”
“not enough is being done to reduce the high tax wedge on labour, although lower taxes on labour remain crucial for a job-rich recovery.”
“The structure of tax systems, and particularly the shifting of the tax base from labour to other sources, is an essential aspect of on-going reforms. A priority for many Member States is to alleviate labour taxation in order to increase incentives to work and to reduce the relatively high cost of labour, in particular for low-skilled workers. While several Member States have taken or started to take tax measures in response to the last year’s recommendations in this area (Austria, Belgium, Italy, France, Latvia, Hungary and the Netherlands), progress has been limited overall. Thus most tax challenges identified in the last year’s recommendations remain valid also for 2014/2015.”
“More generally, progress can still be made to reduce the overall tax burden and/or to make the tax system more efficient and less distortive.(…) Some recommendations thus focus on (…) removing environmentally-harmful subsidies and on further shifting the tax base away from labour to taxation which is less detrimental to growth such as environmental or recurrent property taxes.”
From: European Commission (2014) 2014 European Semester: Country-Specific Recommendations. Building Growth.
“What are the main challenges facing Member States in 2014-15? Shifting to growth-friendlier taxation: Many countries have relied on tax rises rather than spending cuts during the crisis and the overall tax burden has risen. Because there is limited room for manoeuvre when it comes to public finances, a number of recommendations focus on shifting taxation from labour to more recurrent property, consumption and environmental taxes, as they are less detrimental to growth.”
“What do the CSRs say about taxation? – Strong emphasis is put on the need to reduce the high tax burden on labour (which, at 46.5% in the euro area, is higher than non-European OECD countries). In total, 12 Member States are asked to put more effort into shifting the tax burden away from labour to other, less distortive taxes such as consumption, pollution and recurrent property taxes: Austria, Belgium, Czech Republic, France, Germany, Hungary, Italy, Latvia, Lithuania, the Netherlands, Romania and Spain.”
From: European Commission (2014) Q&A: Country-specific recommendations 2014.
“Policy has a further role in providing the right signals for investment in resource efficiency by eliminating environmentally harmful subsidies and switching taxation away from labour towards pollution and resources.”
From: European Commission (2014) Towards a circular economy: A zero waste programme for Europe.
“HEREBY RECOMMENDS that the Netherlands take action within the period 2014-2015 to: (…) Take further measures to enhance labour market participation particularly among people at the margin of the labour market and to reduce tax disincentives on labour.”
From: European Commission (2014) Recommendation for a Council Recommendation on the Netherlands’ 2014 national reform programme and delivering a Council opinion on the Netherlands’ 2014 stability programme.
“At 3.9 % of GDP, the Netherlands has the second highest level of environmental taxes as a percentage of GDP in the EU. It raises significant revenues from transport taxes, especially the vehicle registration tax. It is one of the few countries in the EU with a significant proportion of pollution taxes, beginning with a tax on the pollution of surface waters and sewerage charges (0.72 % of GDP, EU-27 0.1 % of GDP). Even though it has one of the highest levels of environmental taxes in the EU, subsidies through lower energy taxes for energy-intensive industry and horticulture remain.”
“The 2014 taxation plan contains some measures towards a growth-friendly tax shift, such as increasing charges on tap water and re-introducing the waste tax. However, taxation could be shifted further away from labour towards environmental and other taxes less detrimental to growth (e.g. by reducing the preferential tax treatment of diesel compared to petrol; reducing environmentally harmful subsidies; reducing the scope of the reduced VAT rate, abolishing the deduction for small mortgage debt and reducing mortgage interest more quickly and ambitiously, while considering increasing recurrent property taxation, which are still relatively low).”
From: European Commission (2014) Commission Staff Working Document. Assessment of the 2014 national reform programme and stability programme for The Netherlands.
“employment and growth can be stimulated by shifting the tax burden away from labour towards other types of taxes which are less detrimental to growth, such as recurrent property, environment and consumption taxes” .
From: European Commission (2014), Annual Growth Survey 2015.
“Environmental taxes remain underdeveloped in many Member States and their revenues in percentage of GDP declined during the period 1999-2008, despite efforts to move to a greener society. (…) There is potential to raise revenue through tax increases as well as through reducing tax expenditure in environmental taxation.”
From: European Commission (2013), Taxation. Excerpt from Tax reforms in EU Member States 2013.
“Tax systems should be redesigned by broadening tax bases, and shifting the tax burden away from labour on to tax bases linked to consumption, property and pollution.”
“Environmentally harmful subsidies should be reduced.”
“Tax should be designed to be more growth-friendly, for instance by shifting the tax burden away from labour on to tax bases linked to consumption, property, and combatting pollution.”
“To stimulate job creation, action should be taken to reduce the tax wedge on labour, as part of overall efforts to shift the tax burden, in particular for low paid workers and young workers”
“Top personal income rates are at their highest level since 2008. The overall tax burden on labour has increased, but Member States (BE, DK, FI, FR, HU, IT, NL, PT, SE) have decreased labour taxes for specific groups.”
From: European Commission (2013) Annual Growth Survey 2014.
“Country specific recommendations on the tax shift take two forms, which are complementary: 1) a general shift from labour (or capital) taxation to other taxes such as consumption, environmental and property taxation; and 2) a reduction of the labour tax burden for certain groups such as second earners or low-income workers.”
“In 2012, eleven countries received a CSR referring to shifting taxation away from labour or reducing the labour tax burden on specific groups. These countries were: Austria, Belgium, Czech Republic, Germany, Estonia, Spain, France, Hungary, Italy, Latvia, and Slovakia. In 2013, the Commission assessed that the majority of the recommendations were not implemented forcefully. Member States usually increased indirect taxes, but this trend was not accompanied by corresponding cuts in labour taxation to reduce the relatively high cost of labour. As a result, for all of the above mentioned countries – except for Estonia and Spain – the recommendations were reiterated in 2013.”
“In 2012, 12 countries were issued CSRs referring to environmental taxation (Austria, Belgium, Czech Republic, Estonia, Spain, France, Hungary, Italy, Lithuania, Luxembourg, Latvia and Slovakia). Where measures have been taken, tax reforms appeared to be mostly for consolidation purposes. However, the tax instrument was not always fully exploited to achieve environmental objectives. Examples of (smart)/additional reforms would be addressing the gap between diesel and petrol tax rates, limiting the use of some harmful or inefficient reduced VAT on energy products or natural resources, reforming more ambitiously company car taxation, increasing taxes on pollution, etc. Therefore, in 2013, most of the CSRs have been maintained. Between 2012 and 2013, the main measures taken were increases of the excise duty on diesel, increases of the tax rates on energy and reforms of car taxation. The scope of action seems to be limited and at the margin (e.g. small increases of excise duties only correcting for inflation) while tax reforms were sometimes ill-designed (e.g. taxing profits of energy companies instead of consumption) or undermined by other tax reform giving the opposite signal (e.g. tax allowances granted to commuters encouraging the use of private cars instead of public transportation).”
“More than one third of the Member States have increased their excise duties on gas oil and other energy products.”
“Spain has introduced a nuclear tax on the production of radioactive waste resulting from the generation of nuclear energy. Hungary and Italy now apply a surcharge on the company income tax to companies operating in the energy or public utility sectors. However, these latest measures do not provide direct incentives to reduce energy consumption and may have distortionary effects unlike, for example, energy consumption taxes.”
“The limited progress in the field of environmental taxation can be partially explained by competitiveness and social issues. Environmental taxes are considered to be regressive and might aggravate the poverty risk or social exclusion. (…) However, environmental taxation can be designed in a way to reduce social impacts and properly designed environmental taxes can also stimulate the development of new technologies, promote resource efficiency and the creation of ‘green’ jobs.”
From: European Commission (2013) Recent Reforms of Tax Systems in the EU: Good and Bad News.
[The European Commission] “HEREBY RECOMMENDS that Belgium should take action within the period 2013-2014 to: Establish concrete and time-specific proposals for shifting taxes from labour to less growth-distortive tax bases, notably by exploring the potential of environmental taxes, for example on diesel, heating fuels and the taxation of the private use of company cars.”
From: European Commission (2013) Recommendation for a Council recommendation on Belgium’s 2013 national reform programme and delivering a Council opinion on Belgium’s stability programme for 2012-2016.
“HEREBY RECOMMENDS that the Czech Republic should take action within the period 2013-2014 to: (…) Reduce the high level of taxation on labour by shifting taxation to areas less detrimental to growth, such as recurrent taxes on housing and vehicle circulation taxes.”
From: Council of the European Union (2013) Recommendation for a Council Recommendation on the Czech Republic’s 2013 national reform programme and delivering a Council opinion on the Czech Republic’s convergence programme for 2012-2016.
“HEREBY RECOMMENDS that France should take action within the period 2013-2014 to: (…) Take further measures shifting the tax burden from labour to environmental taxation or consumption.”
From: Council of the European Union (2013) Recommendation for a Council Recommendation on France’s 2013 national reform programme and delivering a Council opinion on France’s stability programme for 2012-2017.
“HEREBY RECOMMENDS that Hungary should take action within the period 2013-2014 to: (…) Continue making taxation of labour more employment friendly by alleviating the tax burden on low-wage earners, inter alia by refining the eligibility criteria for the Job Protection Act, and by shifting taxation away to environmental taxes.”
From: Council of the European Union (2013) Recommendation for a Council Recommendation on Hungary’s 2013 national reform programme and delivering a Council opinion on Hungary’s convergence programme for 2012-2016.
“The structure of the tax system remains complex and weighs heavily on labour and capital. After the effort undertaken in 2010-2011, additional measures adopted to shift the tax burden from the productive factors onto consumption, property and the environment have been more limited.
“HEREBY RECOMMENDS that Italy should take action within the period 2013-2014 to: (…) Shift the tax burden from labour and capital to consumption, property and the environment in a budgetary neutral manner.”
From: Council of the European Union (2013) Recommendation for a Council Recommendation on Italy’s 2013 national reform programme and delivering a Council opinion on Italy’s stability programme for 2012-2017.
“Latvia has reduced taxes on labour and plans to take further steps in this regard in 2014 and 2015. However, the tax wedge for low-wage earners is still among the highest in the EU, indicating a need for appropriate calibration of tax policy to stimulate employment for the low-skilled. Moreover, shifting taxation from labour to recurrent property taxes and taxes on the use of natural and other resources should improve the structural balance. Environmental taxes remain relatively underdeveloped and are heavily dominated by motor-fuel taxation, while taxation of other energy sources, pollution and the use of natural resources is below the EU average. Further broadening of the tax base to include other sources of environmental taxation would help in achieving environmental goals.”
“HEREBY RECOMMENDS that Latvia should take action within the period 2013-2014 to: (…) Within this strategy, reduce taxation of low-income earners by shifting taxation to areas such as excise duties, recurrent property taxes and/or environmental taxes.”
From: Council of the European Union (2013) Recommendation for a Council Recommendation on Latvia’s 2013 national reform programme and delivering a Council opinion on Latvia’s convergence programme for 2012-2016.
“Lithuania’s revenues from environmental taxes are on a downward trend and were the second lowest in the EU in 2011, also due to the lowest level of transport taxes in the EU; this does not facilitate reductions in the high energy intensity of the Lithuanian economy.”
“HEREBY RECOMMENDS that Lithuania should take action within the period 2013-2014 to: (…) Review the tax system and consider increasing those taxes that are least detrimental to growth, such as recurrent property and environmental taxation, including introducing car taxation”.
From: Council of the European Union (2013) Recommendation for a Council Recommendation on Lithuania’s 2013 national reform programme and delivering a Council opinion on Lithuania’s convergence programme for 2012-2016.
“Currently, less than a third of tax revenues are raised from consumption taxes, partially owing to moderate standard and reduced VAT rates.”
“Luxembourg is committed to reducing its greenhouse gas emissions in the non-ETS sectors by 20 % in 2020 compared to 2005 but is expected to fail to meet its target by 23 percentage points according to the latest 2020-projections based on existing measures. The transport sector was responsible for 68% of non-ETS emissions in 2011 and represents a key challenge for Luxembourg. Measures currently in place would only contribute to approximately a third of the greenhouse gas emission reduction necessary to meet the target. Consequently, measures need to be significantly stepped up, notably by increasing fuel taxation so as to reduce the taxation gap with neighbouring countries. The vehicle tax reform should also be accelerated. Luxembourg should continue with the implementation of projects which favour the use of public transport. It should introduce congestion charging on roads to encourage a shift towards public transport.”
“HEREBY RECOMMENDS that Luxembourg should take action within the period 2013-2014 to: (…) Step up measures to meet the target for reducing non-ETS greenhouse gas emissions, in particular by increasing taxation on energy products for transport.”
From: Council of the European Union (2013) Recommendation for a Council Recommendation on Luxembourg’s 2013 national reform programme and delivering a Council opinion on Luxembourg’s stability programme for 2012-2016.
“HEREBY RECOMMENDS that Romania should take action within the period 2013-2014 to: (…) explore ways to increase reliance on environmental taxes.”
From: Council of the European Union (2013) Recommendation for a Council Recommendation on Romania’s 2013 national reform programme and delivering a Council opinion on Romania’s convergence programme for 2012-2016.
“HEREBY RECOMMENDS that Spain should take action within the period 2013-2014 to: (…) Consider further limiting tax expenditure in direct taxation, explore the scope to further limit the application of the reduced VAT rates and take additional steps in environmental taxation, notably as regards excise duties and fuel taxes.”
From: Council of the European Union (2013) Recommendation for a Council Recommendation on Spain’s 2013 national reform programme and delivering a Council opinion on Spain’s stability programme for 2012-2016.
“Belgium, Spain, France, Austria, Slovenia, Slovakia, Czech Republic, Latvia, Lithuania, Hungary, Poland and Romania seem to have room for boosting their revenue from environmental taxes. (…) Based on the screening summarised in Table 3.11, Belgium, France (42), Italy, Latvia, Hungary (43) and Romania in particular and, to a lesser extent, Germany, the Netherlands, Austria, Finland, the Czech Republic and Sweden appear to be facing the challenge of reducing the tax burden on labour (either overall or for specific groups) and at the same time appear to have room to increase taxes which are less detrimental to growth.”
“The tax experiments presented here assume a 1 % GDP reduction in labour taxes (comprising both social contributions and taxes on personal income) financed by a similarly sized increase in consumption taxes, such that the tax shift is ex- ante budgetary neutral. It is assumed that the tax reforms are carried out simultaneously in all Member States.”
“The first scenario investigates the effect of a uniform tax shift from the wages of all skill types to consumption (central scenario). The second examines the effect of a tax shift targeted to alleviate only the tax burden of low-skilled workers, leaving the labour tax burden on medium and high-skilled workers unchanged (targeted scenario).”
“The model simulations suggest that a permanent shift of taxes from wages to consumption has positive GDP effects (see Table 3.13). Reducing labour taxes lowers wage costs and reduces prices. The gain in competitiveness that results from the labour tax reduction leads to an increase in employment and output, and boosts exports. Compared to the ‘no-policy change’ baseline, EU-wide real GDP increases in the first year by about 0.11 % and rises to 0.48 % in the long run under the central scenario.”
“(…) the second scenario, in which only the labour taxes on low skilled earners are reduced in a budgetary neutral way. This targeted tax shift produces much greater effects compared to the central scenario, with EU-27 GDP increasing by 0.18 % in the first year and 1.25 % in the long run.”
“Various measures could be taken at national level to improve the design of environmental taxation. These include: (a) adjusting the structure of tax rates on fossil fuels according to their carbon and energy content; (b) indexing environmental taxes; (c) considering the abolition of reduced VAT rates on energy; (d) reducing tax subsidies for company cars; and (e) introducing CO2-related vehicle taxation.”
From: European Commission (2013) Tax reforms in EU Member States. Tax policy challenges for economic growth and fiscal sustainability.
“This paper uses a computable general equilibrium model to gauge these potential distortions by calculating the marginal cost of public funds (MCF) for EU member states. (..) the economic distortions provoked by labour taxes are significantly larger than for green taxes”
“result is slightly less strong when one considers the spillover effects between countries, which are more pronounced (in relative terms) for green taxes. This suggests that the use of green taxes for fiscal consolidation would be more effective were there to be close coordination across EU countries.”
“the efficiency losses from green taxes are far smaller than for labour taxes. Considering EU‐wide figures, the value for labour taxes of 1.90 implies that to raise an additional 1 euro of revenue, the average efficiency loss would be 0.90 euros. In contrast, raising an additional 1 euro of revenue from energy taxes, leads to an average efficiency loss of only 8 cents.”
“The result is also consistent with economic theory, which suggests that taxing goods with a relatively inelastic demand, such as energy, will result in only small distortions. This is not the case for labour if one is faced with a labour supply curve that is at least somewhat elastic. Furthermore, increased unemployment also requires additional social security payments from the government, (…) countries with high starting level of taxation have also the highest values of the MCF.”
“An important point to notice is that in every country, the MCF for labour taxes is higher than for green taxes, suggesting that all countries would see an efficiency gain from switching from labour to green taxes.”
“(…) our results suggest overwhelmingly that should tax increases be considered in EU countries, energy taxes represent a better candidate than labour taxes. (…) energy is relatively under‐taxed compared to labour taxes, at least in the EU countries considered here.”
From: European Commission (2013) The marginal cost of public funds in the EU: the case of labour versus green taxes.
[The Council of the European Union] “INVITES the Commission and Member States to develop a coherent mix of measures to make European materials use more sustainable by further considering: (…) market-based instruments, steering the market towards recycling and waste reduction and recycling certificates; the internalisation of environmental costs, and in particular Member States considering the possibility of shifting the revenue base for national budgets from taxing labour towards taxing energy and resource use”
From: Council of the European Union (December 13, 2010), Sustainable materials management and sustainable production and consumption: key contribution to a resource-efficient Europe.
“(…) the Commission recommends that:
-The tax burden on labour should be substantially reduced in countries where it is comparatively high and hampers job creation. To ensure that reforms are revenue neutral, taxes such as consumption tax, recurrent property tax and environmental taxes could be increased.
– Additional revenue should be raised preferably by broadening tax bases rather than by increasing tax rates or creating new taxes. Tax exemptions, reduced VAT rates or exemptions on excise duties should be reduced or eliminated. Environmentally harmful subsidies should be phased out.”
“To limit the tax burden on labour, notably for the low-paid, as part of broader efforts to shift tax burden away from labour. Temporary reductions in social security contributions or job subsidy schemes for new recruits, notably the low skilled and long-term unemployed, could also be considered to promote job creation, provided they are well targeted.”
From: European Commission (2012) Annual Growth Survey 2013.
“Introduce a taxation system consistent with the fiscal consolidation efforts and more supportive to growth, including a shift away from labour towards consumption and environmental taxation.”
“Economic studies show that certain types of taxes – such as those on labour and income – are more distortive, while others such as consumption and environmental taxes are considered to be more growth-friendly. These latter can also steer certain behaviours in a way that meets wider societal needs and objectives. The Commission therefore advises Member States to shift taxes away from areas that impede growth (labour, corporate taxes) towards more growth-friendly taxes (consumption, environment).”
From: European Commission (2012) The 2013 Annual Growth Survey: Towards fair and competitive tax systems.
“The Commission will: (…) 1. Promote a mainstreaming of green employment into National Job Plans (…) by emphasising in the 2013 European Semester the employment dimension of resource efficiency and the implementation of necessary reforms. In particular, Member States will be encouraged to make greater use of environmental taxes and ETS revenues in shifting taxation away from labour.”
From: European Commission (2012) Towards a job-rich recovery.
“There is scope for broadening the tax base of certain taxes and thus increasing revenue or reducing distortively high tax rates. (…) Phasing out some hidden tax subsidies could help to widen the tax base. In particular, environmentally harmful subsidies should be eliminated.”
“Greater efforts should be made to shift taxation away from labour towards taxation which is less detrimental to growth: for example, increasing consumption, environmental, wealth (for example, high value property) taxation can help to alleviate the tax burden on labour thus making hiring more attractive.”
From: European Commission (2011) Annual Growth Survey 2012.
“taxes and subsidies on the use of energy or other resources can be used both to steer behavior leading to reduced and more efficient consumption and to help restructure public finances away from labor taxation, which benefits job creation and economic growth.”
From: European Commission (2011) A resource-efficient Europe – Flagship initiative under the Europe 2020 Strategy.
“Environmental taxation can also align the efforts for fiscal consolidation with facilitating the restructuring towards a resource efficient economy. Nonetheless, the average share of environmental taxation in total tax revenues in the EU has generally been declining since 1999, reaching a level of 6.3% in 2009.”
“Milestone: By 2020 a major shift from taxation of labour towards environmental taxation, including through regular adjustments in real rates, will lead to a substantial increase in the share of environmental taxes in public revenues, in line with the best practice of Member States.”
“Shifting taxation away from labour to boost employment and economic growth is already emphasized in the Annual Growth Survey for 2011 and in the European Council Conclusions from March 2011 “Green tax reforms”, which consist of increasing the share of environmental taxes, while reducing others (…).”
From: European Commission (2011), Roadmap to a Resource Efficient Europe.
“(…) achieving the target of spending 3% of EU GDP on R&D by 2020 would induce the creation of 3.7 million jobs by 2020.”
“Stimulating recruitment through a reduction of non-wage labour costs (e.g. with a shift from labour taxes to energy consumption or pollution) is paramount in times of high unemployment, since the costs of sustaining unemployment insurance systems will most probably outweigh the reduction of revenue for the social security system. This is particularly important for those who experience particular difficulties to find new jobs after a recession, such as the low skilled or the long-term unemployed. Incentives to shift jobs from the informal into the regular economy are also essential; a good case in point is the development of regular employment in domestic, social care and other not-for-profit activities, offering an important entry to the labour market for those furthest away from it.”
From: European Commission (2010), An Agenda for new skills and jobs: A European contribution towards full employment.
“Shifting taxes away from labour should be a priority for all Member States in order to stimulate demand for labour and create growth.”
“Progress on taxation also implies reducing taxes on labour to the minimum necessary and adapting the European framework for energy taxation in line with the EU energy and climate objectives.”
From: European Commission (2010), Annual Growth Survey: advancing the EU’s comprehensive response to the crisis.
“For example, raising taxes on labour, as has occurred in the past at great costs to jobs, should be avoided. Rather Member States should seek to shift the tax burden from labour to energy and environmental taxes as part of a “greening” of taxation systems.”
From: European Commission (2010), Europe 2020. A strategy for smart, sustainable and inclusive growth.
“simulations using the Quest III model also indicate that a shift from the most distortionary taxes (on labour and capital) to the least distortionary taxes (consumption, housing) could mitigate the output losses associated with fiscal consolidation in the short run and have a positive impact on GDP in the long run. According to these simulations, a consolidation package relying heavily on taxing consumption and housing while reducing income taxes would only lead to a minor and short-lived fall in GDP. Given the rise in potential output entailed by such a tax reform, output would be almost 1 per cent higher than baseline in the long run.”
From: European Commission (2010) Monitoring tax revenues and tax reforms in EU Member States 2010. Tax policy after the crisis.
“An environmental tax reform (ETR) shifting the tax burden from welfare-negative taxes, (e.g. on labour), to welfare-positive taxes, (e.g. on environmentally damaging activities, such as resource use or pollution) can be a win-win option to address both environmental and employment issues. At the same time, a long term tax shift will require relatively stable revenues from the environment related tax base. ETR can also help to alleviate the possible adverse competitiveness effects of environmental taxes on specific sectors. If the action is closely co-ordinated at the Community level, these impacts can be further reduced compared to unilateral actions by Member States. Reductions in labour taxation or social-security contributions which tend to benefit lower-income households, can counterbalance any possible regressive effect from environmental taxes. Finally, with an ageing population, which increases pressure on public expenditure, and globalisation that makes taxation of capital and labour less viable, the shift of tax burden from direct taxation towards consumption and, in particular, environmentally damaging consumption, may provide considerable benefits from a fiscal perspective”
From: European Commission (2007) Green paper: on market-based instruments for environment and related policy purposes.
“The key messages of this Communication were reflected in the 1998 Employment Guidelines [Council Resolution of 15.12.1997], highlighting the need to exploit fully the job creation potential in new activities, such as those in the environment sector, and to reduce the tax burden on labour, e.g. by shifting tax to energy and environmental pollutants.”
From: European Commission (2005) Commission Staff Working Document on the links between employment policies and environment policies.
[The European Commission proposes to] “Continue the gradual restructuring of tax systems by reducing non-wage labour costs on the one hand and on the other, incorporating environmental and resource costs into market prices of goods and services.”
From: European Commission (1997) Communication from the Commission on environment and employment. Building a sustainable Europe.
“The serious economic and social problems the Community currently faces are the result of some fundamental inefficiencies: an ‘under-use’ of the quality and quantity of the labour force, combined with an ‘overuse’ of natural and environmental resources.”
“The tax burden must be redistributed so as to lighten the burden on labour and increase the burden on the use of natural resources.”
“The twin challenge of unemployment/environmental pollution is to be addressed, a trade off can be envisaged between lower labour costs and higher pollution charges.” (…) An important dimension of the proposal concerns the widely advocated shift towards a more intensive use of indirect taxation, as well as a widening and balancing of the tax base for energy products. In the Community these proposals enjoy popular support: about 60% of European citizens are in favour of such a tax.”
From: European Commission (1993) Growth, competitiveness and employment. Challenges and the ways forward into the 21th century.
“My message is clear. Solutions exist. First, let’s shift taxes from salaries to carbon. We should tax pollution, not people. Second, stop subsidizing fossil fuels. Taxpayers’ money should not be used to boost hurricanes, spread drought and heat waves, and melt glaciers.”
– António Guterres, Secretary-General of the United Nations
“It’s important to move taxes from salaries to carbon, to tax pollution, not people.”
– António Guterres, Secretary-General of the United Nations
From: Reuters (2019), Tax pollution, not people, says UN chief on Pacific visit. Video.
“Third, ‘revenue neutral’ recycling, at a constant share of taxes on GDP, into lowering some existing taxes compensates at least part of the propagation effect of higher energy costs (Stiglitz et al., 2017). The substitution by carbon taxes of taxes that cause distortions on the economy can counteract the regressive effect of higher energy prices. For example, offsetting increased carbon prices with lower labour taxes can potentially decrease labour costs (without affecting salaries), enhance employment and reduce the attractiveness of informal economic activity (Goulder, 2013).”
From: IPCC (2018), Summary for Policymakers of IPCC Special Report on Global Warming of 1.5ºC approved by governments; Chapter 4: Strengthening and implementing the global respons.
“[The European Parliament] Recalls that SMEs can be expected to play an important role in the circular economy, providing sustainable, yet labour-intensive services such as repair, refurbishing and recycling; considers that a tax shift from labour to natural resource use is a prerequisite for the long-term success of SMEs; (…) requests that the Commission assess the impact of a tax shift from labour to natural resource use”
From: European Parliament (April 15, 2015), Green growth opportunities for SMEs.
‘The Union and its Member States will need to put in place the right conditions to ensure that environmental externalities are adequately addressed, including (…) considering fiscal measures in support of sustainable resource use such as shifting taxation away from labour towards pollution.”
[Parliament] “Urges the Member States to make a shift towards environmental taxation emphasises that this should allow for cuts in other taxes such as those on labour”.
From: European Parliament (2012) European Parliament resolution of 24 May 2012 on a resource-efficient Europe.
“Limiting global warming to 2°C or less requires policy measures on an ambitious scale, such as an immediate global carbon tax that will rise rapidly to $75 a ton of CO2 in 2030. (…) The revenue from such a tax (1.5 percent of GDP in 2030, on average, for the Group of Twenty [G20] countries) could be redistributed, for example, to assist low-income households, support disproportionately affected workers or communities (for example, coal-mining areas), cut other taxes, fund investment in clean energy infrastructure or United Nations Sustainable Development Goals, reduce fiscal deficits, or pay an equal dividend to the whole population. (…) The shift from fossil fuels will not only transform an economy but also profoundly change the lives of households, businesses, and communities. importantly, the shift would generate additional and immediate domestic environmental benefits, such as lower mortality from air pollution (725,000 fewer premature deaths in 2030 for a $75 a ton tax for G20 countries alone). Businesses that deploy new technologies would earn profits and create jobs”.
IMF International Monetary Fund (October 2019), Fiscal Monitor. How to mitigate Climate change.
“Fiscal policies are key to efficiently mobilizing both public and private sources of finance, while the need to adapt economies to climate change raises issues that have implications for the design of national tax and spending systems (for example, strengthening fiscal buffers and upgrading infrastructure in response to natural disaster risks).
For reducing carbon emissions (‘mitigation’), carbon pricing (through taxes or trading systems designed to behave like taxes) should be front and center. These are potentially the most effective mitigation instruments, are straightforward to administer (for example, building off fuel excises already commonplace in most countries), raise (especially timely) revenues for lowering debt or other taxes, and establish the price signals that are central for redirecting technological change towards low-emission investments.
Productive use of this revenue critical for containing the overall costs of carbon pricing for the economy. Revenues could be used for lowering taxes on labor and capital that distort economic incentives, producing a counteracting economic benefit to the costs of higher energy prices”
From: Farid, Mai, Keen, Michael, Papaioannou, Michael, Parry, Ian, Pattillo, Catherine, Ter-Martirosyan, Anna and other IMF Staff (2016), After Paris: Fiscal, Macroeconomic, and Financial Implications of Climate Change. IMF Staff Discussion Note.
“Tax reforms could increase potential growth, enhance fairness, and improve efficiency. Despite progress in recent years, the Dutch tax and benefit system remains unbalanced; large efficiency gains could be achieved by shifting the tax burden away from labor, and towards consumption and capital income”.
“Lowering the tax wedge and improving the design of labor taxes and social benefits can strengthen work incentives and induce a positive labor supply response (…)”
“Female labor supply is more responsive to taxes than male labor supply. Hence, tax relief for women could elicit a positive net response, even when financed by higher taxes on men.”
“Older workers are more sensitive to financial incentives than younger workers (Blundell, 2014; IMF, 2014a). Lower tax rates (including implicit taxes on continuing work) can increase incentives to remain in the labor force.”
“Empirical evidence shows that targeted tax credits result in positive net employment effects as low-skilled workers exhibit higher labor supply elasticities than highskilled workers (OECD, 2011; IMF, 2014a).”
“A shift in the revenue composition toward more growth-friendly taxes. As noted above, corporate income taxes have the most negative effect on growth, followed by labor income taxes, then indirect taxes, and finally property taxes (IMF, 2013a). However, most countries rely to a great extent on direct tax revenue”.
From: IMF (2015), Fiscal Policy and Long-Term Growth. IMF Policy Paper.
“while employment protection can help level the playing field in terms of bargaining between firms and workers, too high a level of protection—or differing levels of protection across employment groups (e.g., permanent versus temporary contracts)—can lead to labor market distortions where some groups, such as the young, end up with very high unemployment rates.
The IMF’s advice on labor market issues is tailored to each country’s circumstances. In Europe, for instance, several countries are currently faced with the challenge of having to regain competitiveness to boost growth. Because eurozone membership implies that the nominal exchange rate cannot be devalued and interest rates cannot be adjusted in an individual country, and because productivity increases only take hold over time, improving competitiveness may require a reduction in costs, including labor costs.”
From: IMF (September 30, 2014), The IMF’s Advice on Labor Market Issues. Fact Sheet.
‘Fiscal instruments (carbon taxes or similar) are the most effective policies for reflecting environmental costs in energy prices and promoting development of cleaner technologies, while also providing a valuable source of revenue. Fiscal policies also have an important role to play in addressing other major environmental challenges, like poor air quality and urban congestion.’
‘Broad-based charges on greenhouse gas emissions, such as a carbon tax, are the most effective instruments for reducing emissions throughout the economy.’
From: IMF (2013) Factsheet Climate, Environment, and the IMF.
‘Ideally, carbon prices are applied in proportion to the carbon content of fuels as they enter the economy (…). The costs of comprehensive carbon pricing is initially modest if revenues are used productively. Productive revenue uses include reducing taxes on work effort’.
From: Parry, Ian, de Mooij, Ruud, Keen, Michael (Eds.) (2012), Fiscal Policy to Mitigate Climate Change. A Guide for Policymakers.
“For most environmental problems, well-designed fiscal policies (emissions taxes or their cap- and-trade equivalents with allowance auctions) are the most natural instruments for incorporating environmental damages into the price of products and non-market activities (like driving).”
“Several factors point to continued momentum for environmental tax reform. One is pressure for new revenues to strengthen fiscal positions. Another is growing acceptance among policymakers that emissions pricing instruments are far more effective at exploiting the entire range of emissions reduction opportunities than are regulatory approaches. Swapping environmental taxes (that apply to traded goods) for labor taxes might also be means to improve competitiveness. And environmental problems are of growing concern, from rising greenhouse gas (GHG) concentrations to deteriorating urban air quality in industrializing nations to increasing congestion (a related externality) of transportation systems.”
From: Heine, D., Norregaard, J. and Parry, I.W.H. (2012), Environmental Tax Reform: Principles from Theory and Practice to Date. IMF Working Paper.
“Getting the prices right means using fiscal policy to make sure that the harm we do is reflected in the prices we pay. I am thinking about environmental taxes or emissions trading systems under which governments issue—and preferably sell—pollution rights. It is basically a variation of the old mantra: “you break it, you buy it”.”
“As we move forward, there is much work to be done at the technical level, in terms of the appropriate design of taxes and tax-like instruments to get the prices right. The IMF will play an active role in this. (…) we will be talking about the use of fiscal policy, and reform of energy subsidies, to promote green growth.”
From: International Monetary Fund (2012), Back to Rio—the Road to a Sustainable Economic Future, Speech by Christine Lagarde, 12th June 2012.
‘Climate change is a global externality problem, calling for some degree of international fiscal cooperation.’
From: IMF (2008), The Fiscal Implications of Climate Change.
“Under the circular economy scenario, worldwide employment would grow by 0.1 per cent by 2030 in comparison with a business-as-usual scenario. This is equivalent to around 6 million more jobs in an economy that adopts certain tenets of the circular economy, such as recycling and the service economy. Employment growth is led by growth in services and waste management, with some 50 and 45 million jobs, respectively.”
From: ILO (2018), World Employment and Social Outlook 2018 – Greening with Jobs.
“A large part of the costs (immediate and long-term) associated with natural resource extraction and waste generation are not incorporated into the price of the related goods and services. Moreover, tax systems around the world tend to tax labour income and profit rather than natural resource extraction and pollution. Such tax systems can be inefficient, as they discourage work and profit-making while not discouraging resource use and pollution.”
Montt, Guillermo, Fraga, Federico, Harsdorff, Marek (2018), The future of work in a changing natural environment: Climate change, degradation and sustainability. ILO Future of Work Research Paper Series.
“Introduce environmental tax reform, in particular an eco-tax, that shifts the burden to resource use and pollution and away from labour.”
“Taxing polluters generates revenues that can be leveraged to reduce other (distortionary) taxes, for example taxes on labour. These reductions can lead to higher labour demand and higher employment, while using less energy.”
From: Poschen (et al.) (2012), Working towards sustainable development: Opportunities for decent work and social inclusion in a green economy. The Green Jobs Initiative (UNEP, ILO, IOE, ITUC).
“If a price on CO2 emissions was imposed – at a level close to what is internationally suggested – and if the resulting revenues were used to cut labour taxes, then employment would rise by 0.5 per cent by 2014. This is equivalent to over 14.3 million net new jobs for the world economy as a whole”.
From: Torres, Raymond (Ed.) (2009) World of Work Report 2009: The Global Jobs Crisis and Beyond, International Institute for Labour Studies.
“Tax reform can play an important role in greening growth. The evidence-driven simulations presented in this report of the Ex’tax Project [New Era Europe] suggest that shifting taxes from labour to consumption and natural resources will result in more growth, more employment, and a smaller environmental footprint. We have enough evidence to support green tax reform and concrete policy action.”
– Angel Gurría, OECD Secretary-General (2016)
“Policy misalignments are sometimes also hindering the emergence of circular business models. One example concerns the provision of subsidies to extractive and material processing sectors, which can extend into the billions of dollars for fossil fuels (OECD, 2015), metals (OECD, 2017), fisheries (OECD, 2018), and agriculture (OECD, 2016). Another example concerns the tendency to tax labour inputs at significantly higher rates than capital and natural resource inputs. A recent Club of Rome report on the circular economy (Wijkman, Skånberg and Berglund, 2016) states that, “modern tax systems in the EU apply high rates to employment while leaving the use of natural resources tax-free or even subsidized”. For the same reason as that outlined above, these policies probably serve to favour traditional modes of economic production. Policy makers could therefore consider what objectives existing fiscal policy is serving, and whether a fiscal realignment could lead to improved environmental and equity outcomes.”
“The impact of revenue-raising objectives on optimal tax levels is empirically difficult to establish, but different models indicatie that the marginal economic cost of tax distortions is lower for environmentally related taxes than for labour taxes (e.g. Groothuis, 2016). This would imply that an equal revenue tax shift from labour taxes to taxes on energy use, e.g. by aligning taxes on energy use with the external costs of energy use, reduces the overall economic cost of raising the given amount of revenue. Note that considerations related to revenue-raising are unrelated to the funding needs in a particular sector. Imposing sector-specific budget constraints can potentially be useful for regulatory or political economy reasons (not considered in this report) but are not productive from a public finance point of view.”
From: OECD (2018), Taxing Energy Use 2018
“High taxes on labour income can hamper job creation and work incentives. Taxation distorts the labour market by driving a wedge between the total labour costs faced by employers and the return to employees, thus affecting both labour demand and supply decisions, and therefore the level of employment. In many OECD countries, high tax wedges – which measure the total tax payments on labour income as a percentage of total labour costs – imply both potentially significant reductions in labour demand, as well as significant disincentives for workers to participate in the labour force (Figure 8).”
“More revenues could be raised through environmentally-related taxes. In the area of environmental taxation, one of the arguments has been that green taxes can generate a so-called “double dividend”. By raising environmentally-related taxes, not only can governments achieve better environmental outcomes, but they may also be able to use the additional revenue from green taxes to reduce more distortive taxes, such as taxes on labour income (see above) and thereby generate a double dividend.”
From: Perret, Sarah (2018), Tax design for inclusive growth in OECD countries. [Note for the Expert Group Meeting on “Addressing inequalities and challenges to social inclusion through fiscal, wage and social protection policies”, held at UN Headquarters in New York on 25–27 June 2018].
“A more growth- and equity-friendly tax system can be achieved by shifting the tax burden toward immovable property, broadening the tax base and reducing the fragmentation of the tax system. A shift to environmental taxation can also help improve the sustainability of growth and well-being, provided measures are taken to ensure that lower-income households are not disproportionately impacted by green taxes. … Reductions in labour or corporate taxes are generally recommended alongside increases in indirect taxes”
“high labour tax wedges can reduce firms’ labour demands by driving up the cost of labour (due to high employers’ contributions or payroll taxes). As a result, high labour tax wedges are associated with lower employment and hours worked as well as higher unemployment. Such detrimental effects are stronger for workers already facing foremost labour demand-side obstacles, generally the youth, the disabled and the low-skilled, and the elderly. Too high, ill-designed social security provisions and tax wedges are also major drivers of labour informality in emerging-market countries, reflecting both labour demand and supply-side obstacles. Reducing labour taxes, including through cuts in social security contributions, thus remains a priority for many advanced and emerging-market countries“.
From: OECD (2018), Economic Policy Reforms 2018. Going for Growth Interim Report.
“Tax policies can help to make labour markets more inclusive. A key priority for many OECD countries should be to reduce structural unemployment. This should include continuing to reduce marginal tax rates for those with low skills and low propensity to work. (…) A number of OECD countries would also benefit from reductions in payroll taxes, and shifts in the burden of social protection financing away from social security contributions (SSCs) and onto other tax bases.”
From: OECD (2018), Opportunities for All: A Framework for Policy Action on Inclusive Growth.
“Importantly, increased or more effective use of environmentally related taxes can drive growth-oriented reform (by shifting the tax burden away from more distortive taxes, e.g. on corporate or personal income) and contribute to fiscal consolidation (i.e. by reducing government deficits and debt accumulation).”
From: OECD (2015), Towards Green Growth? Tracking progress
“Countries continue to support fossil fuel production and consumption in many ways. Not all fossil fuels are treated equal. Variations in energy tax rates, uneven price signals, low levels of taxation on fuels with high environmental impacts, and exemptions for fuel used in some sectors impede the transition to a low-carbon economy. Coal is usually the least heavily taxed of all fossil fuels but the most carbon-intensive fuel available for electricity generation. This suggests important opportunities for reforming countries’ tax systems, aligning policies and achieving environmental goals more cost- effectively.
The use of environmentally related taxes is growing but remains limited compared to labour taxes. The revenue they raised represented about 1.6% of GDP in 2013. It is dominated by taxes on energy (69%) and on motor vehicles and transport (28%). Variations in energy tax rates, uneven price signals, low levels of taxation on fuels with high environmental impacts, and exemptions for fuel used in some sectors impede the transition to a low-carbon economy. Many countries still apply higher taxes for petrol than for diesel, and the share of taxes in end-use prices is generally higher for households than for industry.
The level of taxation of energy relative to that of labour can influence the relative price of inputs, affect labour demand and stimulate the use of energy from cleaner sources.”
From: OECD (2015), Environment at a Glance 2015: OECD Indicators, OECD Publishing, Paris.
‘If governments are serious in their fight against climate change, the core message of this reform must be that the cost of CO2 emissions will gradually increase, creating a strong economic incentive to reduce the carbon entanglement and to shift towards a zero carbon trajectory. A central feature of such an approach is placing a price on carbon.’
‘Extending and improving the use of carbon taxes and emissions trading schemes is a necessary first step. Governments also need to reform the estimated USD 55-90 billion of support provided each year to fossil fuel exploration, production and consumption in OECD countries.’
‘(…) most governments tend to recycle the revenue from carbon taxes back to consumers through reductions in income taxes, especially for low-income households most affected by the carbon taxes, or to increase the budget allocation for social services.’
From: OECD (2013), Climate and Carbon. Aligning Prices and Policies. OECD Environment Policy Paper n°01.
‘Water security objectives could be met in a more cost effective manner by using market instruments, such as water taxes (e.g. abstraction taxes, pollution taxes). These taxes provide incentives for polluters and resource users to change their behaviour today. They also provide long term incentives to innovate for a more water secure future tomorrow.’
‘The revenue from water taxes can be used to strengthen the budget balance; to finance increased spending or to reduce other, distortionary taxes.’
From: OECD (2013), Water security for better lives. OECD studies on water. OECD publishing.
“Taxing employers, through social security contributions or payroll taxes, discourages them from hiring. And taxing employees’ wages lowers their take-home pay and discourages work.”
From: OECD (2011), Tax reform can create jobs. Tax Policy Study No. 21: Taxation and Employment.
“Increased use of environmentally related taxes can play an important role in growth-oriented tax reform by helping to shift part of the tax burden away from more distortive corporate and personal income taxes and social contributions.”
From: OECD (2011), Towards Green Growth.
The balance of costs and benefits from these policies [such as taxation, labour regulation and energy costs] determines whether recycling is more or less profitable than alternative disposal of recyclate materials, or even to what extent individual substances are recovered from complex products.’
‘In the context of recycling, differential taxation can play a role, either through energy-price controls or by favouring recycling processes or materials. The balance of taxation between energy, materials and labour cost further affects the viability of the collection of EoL [End of Life] goods.’
From: UNEP (2013) Metal Recycling: Opportunities, Limits, Infrastructure. A Report of the Working Group on the Global Metal Flows to the International Resource Panel. Reuter, M. A.; Hudson, C.; van Schaik, A.; Heiskanen, K.; Meskers, C.; Hagelüken, C.
“A high tax burden on labour is an impediment to the objective of supporting economic activity and increasing employment.
(…) tax wedge reductions need to be compensated (…) through revenue-neutral tax shifts, away from labour to revenue sources that are less detrimental to growth such as consumption taxes, recurrent property taxes and/or environmental taxes.”
From: Eurogroup (2014), Structural Reform Agenda – Thematic Discussions on Growth and Jobs – Reduction of the Tax Wedge.
Feike Sijbesma, CEO of DSM, advocating the Ex’tax shift during the Innovating to Meet the Climate Challenge:
“When we would have a carbon pricing system, we let people pay for the externalities, we let people pay for scarce resources, and we can reduce other taxes like those on labour. Then you get a shift. (..) It is very weird that we are taxing labour. I mean why would any country be against the fact that people want to find a job. We should tax the things that are very scarce and we don’t want to used abundantly.”
“we should anchor value creation (or destruction) on the People and Planet dimensions in the overall valuation of companies. One approach might be to introduce differentiated tax regimes depending on companies’ performance or contribution on the ecological or societal axis.
A logical complement to such an approach would be to consider increased taxing on the use of scarce resources, whilst diminishing taxes on labor. This would help to tackle the scourge of unemployment and could make it easier to create jobs for older people as well as in certain services that society wants but that have become almost unaffordable.”
From: Sijbesma, Feike (February 1, 2013), We Need to Redesign Our Economy. Huffington Post
The World Business Council for Sustainable Development (WBCSD) is a CEO-led association of some 200 international companies. In 2010 WBCSD published its Vision 2050 report which lays out a pathway leading to a global population of some 9 billion people living well, within the resource limits of the planet by 2050. This work results from an 18-month combined effort with CEOs and experts, and dialogues with over 200 companies and external stakeholders in some 20 countries. The report included a strong plea for a tax shift:
‘Increase price levels, via taxes and levies, to influence a shift of consumption toward the offering with the best environmental and social profile’
‘Tax strategies [should] shift towards incentivizing job creation and healthier products and discouraging negative external factors like pollution and environmental damage.’
From: WBCSD (2010), Vision 2050.
‘… Adjusting the fiscal framework is … the most fundamental and urgent pre-requisite for approaching a sustainable future. Subsidies that increase the consumption of natural resources must be eliminated, and economic instruments should be deployed such as a shift away from overheads on labor and toward taxing raw materials – with the side effect of creating new jobs and redistributing income to developing countries where many of the resources come from – and market creation policies including tradable permits.Instead of applying value added taxation to final goods it may be more effective to tax natural resources at the point at which they are removed from nature or where they enter the industrial metabolism.’
From: the Declaration of the World Resources Forum (September, 2009), Resource Governance – Managing Growing Demands for Material on a Finite Planet.
“Revenues from carbon pricing can be used to deliver increased economic growth through efficiency-enhancing tax reform. The mechanism involves reducing the rate of tax levied on labor or business income (revenues or profits). Economic theory suggests that these taxes create distortions by discouraging labor market participation and investment. Therefore, taxing economic “bads” (in this case carbon emissions) and using the revenues to reduce distortionary taxes on economic “goods” (labor and capital) should increase the efficiency of the overall tax system. The increase in efficiency from broader tax reform has the potential to provide a double dividend, both improving environmental outcomes and increasing overall economic activity. Without offsetting tax reform, carbon pricing can reduce real wages by increasing prices, in turn creating additional disincentives to work. However, by using carbon revenues to reduce taxes such as labor income tax, carbon pricing could have a net-positive effect on real wages, stimulating growth in GDP and employment. The Organisation for Economic Co-operation and Development (OECD) estimates that combining fiscal and structural reform with appropriate climate policy could achieve a net positive effect on GDP of 2–3 percent across G20 economies by 2050 (OECD 2017).”
From: World Bank (2019), Using Carbon Revenues. Partnership for Market Readiness Technical Note; No. 16. https://openknowledge.worldbank.org/handle/10986/32247
“Environmental tax reform (ETR) combines environmental taxes with reductions in other taxes (tax shifts), expenditure policies, and supplementary policies. By raising upstream taxes on fossil fuels and using revenues to reduce labor taxes or increase public investment and social spending, ETR can help developing countries mitigate climate change while raising welfare.”
“With respect to employment, ETR can be expected to shift employment from polluting to nonpolluting industries. If revenues are used to reduce taxes on labor, this shift may result in a net increase in employment (an “employment dividend”).”
“Environmental taxes tend to be much easier to collect than many other taxes, especially direct income taxes; therefore, shifting from income taxes to environmental taxes can reduce the costs of tax evasion.“
“ETR creates the opportunity to shift the tax burden from the formal to the informal sector, thereby stimulating the relative growth of the formal sector and the economy.“
From: Pigato, Miria A. (Ed.) (2019), Fiscal Policies for Development and Climate Action. The World Bank. https://openknowledge.worldbank.org/bitstream/handle/10986/31051/9781464813580.pdf?sequence=4&isAllowed=y
“it is important to consider how major tax bases—labor income and consumption—are likely to evolve over the long term. With the number of contributors to payroll taxes shrinking and non-labor income increasing as societies in the region age, the tax base will shift increasingly from labor income to consumption. As a result, to ensure sustainable financing for future large social obligations, it might be necessary to consider a gradual shift from payroll to consumption taxes (e.g., VAT and excises) and other underutilized instruments (e.g., property taxes). There are also employment and growth reasons why considering fiscally prudent reduction in labor taxes, particularly for low wage earners might be a good idea.”
From: Bogetic, Z., Onder, H., Onal, A., Skrok, E., Schwartz, A. and Winkler, H. (2015), Fiscal Policy Issues in the Aging Societies. World Bank.
“Carbon pricing offers a potential “double dividend” by providing both environmental benefits and the possibility of reducing more distortionary taxes (such as those on labor or capital) by recycling carbon revenues.”
“(…) resources raised by carbon-pricing schemes can contribute to attracting more jobs and investments by improving more important factors, such as education and workers’ skills or infrastructure, and by reducing capital and labor taxes that are more distortive than carbon pricing.”
From: Fay, Marianne, Hallegatte, Stéphane, Vogt-Schilb, Adrien & Rozenberg, Julie, Narloch, Ulf, Kerr, Tom (2015), Decarbonizing Development: Three Steps to a Zero-Carbon Future. The World Bank.
“Shifting taxes from labour to finite resources could level the playing field for more labour-intensive, but less resource-intensive practices. This creates jobs, while saving resources.”
From: The Ellen MacArthur Foundation (2015), Growth within: a circular economy vision for a competitive Europe.
So how could distributive design helpt to prevent the economic segregation that technology appears to be driving? An obvious starting point is to switch from taxing labour to taxing the use of non-renewable resources: it would help to erode the unfair tax advantage currently given to firms investing in machines(a tax-deductible expense) rather than in human beings (a payroll tax expense).”
“Governments have historically opted to tax what they could, rather than what they should, and it shows. Tax windows and you’ll get dark houses, as Britain discovered in the eighteenth and nineteenth centuries; tax employees and you’ll head for a jobless economy, as many countries are discovering today. it is happening in part thanks to the twentieth century’s legacy of perverse tax policies, which change firms for hiring humans (through payroll taxes), subsidies them for buying robots (through tax-deductible capital investments), and levy next to nothing on the use of land and non-renewable resources. In 2012, over 50% of tax revenue raised in the EU came from taxing labour; In the United States, the percentage was weven higher. 55”
55 The Ex’Tax Project (e.a.) (2014) New Era. New Plan. Fiscal reforms for an inclusive, circular economy.
From: Raworth, Kate (2017), Doughnut economics: seven ways to think like a 21st-century economist. London: Random House.
“To reconcile taxation with an overall economic strategy that seeks to maximise all citizens’ wellbeing, the tax system should adhere to three central principles: tax bad things (like pollution), rather than good things (like work); design taxes to cause the least possible distortion in the economy; and maintain a progressive rate structure, with richer individuals paying a larger share of their income.”
From: Stiglitz, J. (May 9, 2018), Showing the way in San José – how Costa Rica gets it right.
Among the key conclusion of the High-Level Commission on Carbon Prices, led by Nobel Laureate Joseph Stiglitz and Lord Nicholas Stern:
“Carbon prices raise revenues in an efficient way, in the sense that they tackle a key market failure, the climate externality. (…)
Recycling revenue to reduce distortionary taxes may, under certain conditions, offer a “double dividend”—by providing both environmental benefits and an aggregate economic gain: taxing “bads” (pollutants) rather than “goods” (labor, capital) can allow for a less costly tax system (Goulder 2013; de Mooij 2000). (…)
Revenues can also be used to reduce the social charges imposed on labor costs. This may reduce unemployment rates and help increase real wages. This would also serve to counteract the potentially regressive effects of higher carbon prices and help poor people deal with the higher price levels caused by carbon pricing. It also has positive distributional impacts because of the larger share of wages in the total income of poor households (higher-income households may have other sources of income—capital, interest, and rents). Moreover, mitigation options (e.g., energy efficiency, renewables, and agricultural and forestry low-carbon practices) are generally more labor-intensive than economic activities based on fossil fuels. Therefore, recycling carbon tax revenues may generate a double dividend: fostering the transition toward decarbonization while simultaneously promoting economic growth and social development (Combet 2013; Grottera, William, and La Rovere 2016; La Rovere et al. 2017; Goulder 1995a).”
From: CPLC (2017), Report of the High-Level Commission on Carbon Prices.
“Decision makers have a range of options and tools for improving the sustainability of economic and financial systems. Achieving a sustainable economy involves making fundamental reforms to economic and financial systems and tackling poverty and inequality as vital parts of sustainability. Governments could reform subsidies and taxes to support nature and its contributions to people, removing perverse incentives, and instead promoting diverse instruments such as payments linked to social and environmental metrics, as appropriate.”
From: IPBES (May 2019), Summary for policymakers of the global assessment report on biodiversity and ecosystem services of the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services.
“To move society towards sustainability – both socially and ecologically – would require a tax shift, lowering taxes on work and increasing taxes primarily on the consumption of non-renewable resources. Such a tax shift would accelerate the transition to a circular economy, which is low carbon and resource-efficient in nature.”
From: Wijkman, A. and Skånberg, K.(2016), The Circular Economy and Benefits for Society. Club of Rome.
‘Government and business must realize that climate change mitigation and the protection of oceans and terrestrial ecosystems require drastic changes in the use of natural resources.
Targets for resource efficiency must be introduced, supported by tax reform, which should increase taxes on the use of resources and lower taxes on labour.’
From: The Amsterdam Declaration of the Global Assembly of the Club of Rome (October 27, 2009).
‘If we imagine the planet’s natural resources as our collective inheritance, we should ideally be striving to live from the planet’s interest and not recklessly squander its capital. We must therefore learn to effectively manage the environment just as we would any other business.
[Value Extracted Tax] can within a few decades generate the new market mechanisms necessary for sustainable growth, a growth that ensures freedom of entrepreneurship without depleting the planet’s resources. (…) a truly service-oriented economy will be created in which businesses distinguish themselves by the degree of net value added to their products or services.’
From: Eckart Wintzen
“Onze belangrijkste conclusies zijn:
Voor de economie als geheel heeft een verhoging van de belasting op uitstoot met €50 per ton geen grote gevolgen: het bbp ligt na vijf jaar ongeveer een procent lager.
Voor een aantal uitstootintensieve bedrijfstakken heeft de CO₂-belasting echter forse gevolgen. In de chemische- en basismetaalindustrie, de delfstoffenwinning en de energiesector zou de grootste kostenstijging optreden, resulterend in een significante verslechtering van hun internationale concurrentiepositie.
De effecten zijn in het algemeen veel minder ongunstig als de CO₂-belasting wordt opgelegd in de gehele EU. Ook dan zijn echter de verschillen tussen afzonderlijke bedrijfstakken soms aanzienlijk. Zo zal de afzet van de chemische industrie ook bij een Europese belasting nog steeds fors afnemen. De bredere macro-economische effecten van een CO₂-belasting worden in sterke mate bepaald door de besteding van de extra belastinginkomsten door de overheid. Zo kan verlaging van de inkomstenbelasting de aanpassingslast voor huishoudens beperken.
Een alternatieve optie voor het terugsluizen van de CO₂-belasting is het generiek verlagen van de winstbelasting. Het is naar alle waarschijnlijkheid echter effectiever om de omschakeling naar schone technologie in specifieke bedrijfstakken financieel te stimuleren.”
“In onze berekeningen met het IO-model stijgen de productiekosten voor Nederlandse bedrijven bij een Europese CO₂-belasting sterker dan bij geïsoleerd beleid. Vervolgens kijken we naar het effect van de hogere productiekosten op de afzet, zowel binnenlands als buitenlands. Per saldo daalt de afzet van Nederlandse bedrijfstakken na de Europese invoering van een CO₂-belasting. Over alle bedrijfstakken samen krimpt de geproduceerde hoeveelheid met 0,6%. Dit is minder dan bij een belasting in alleen Nederland (1,2% krimp). Voor de economie als geheel vinden we geen grote gevolgen. Een directe en brede verhoging van de CO₂-belasting met €50 verlaagt het bbp met bijna een procent. De extra belastinginkomsten worden in eerste instantie niet ingezet voor een compenserende lastenverlaging, maar komen ten goede aan de overheidsfinanciën.
We kwantificeren hier twee algemene opties: verlaging van de inkomstenbelasting respectievelijk verlaging van de winstbelasting. Het beleid is budgettair neutraal, ofwel de extra ontvangsten worden volledig gebruikt voor belastingverlaging. Door het verlagen van de inkomstenbelasting neemt het beschikbare inkomen van huishoudens toe, zodat de particuliere consumptie met 2,2% groeit. Daarbij gaan bedrijven meer produceren en daalt de werkloosheid. Vergeleken met het eerste scenario, zonder belastingverlaging, is de krimp van de investeringen minder groot. De verslechtering van de concurrentiepositie door de CO₂-heffing heeft nog steeds een drukkend effect op de uitvoer, maar dit wordt meer dan gecompenseerd door extra bestedingen van huishoudens, zodat per saldo een verbetering van het bbp met 0,5% optreedt. Een alternatieve optie voor besteding van de ontvangen CO₂-belasting is een generieke verlaging van de winstbelasting voor alle bedrijven. Dit heeft tot gevolg dat bedrijven fors meer gaan investeren, vanwege de lagere kapitaalkosten. Dit heeft op zichzelf een opwaarts effect op het bbp. Tegelijkertijd is arbeid relatief duur geworden voor bedrijven, zodat de werkloosheid oploopt. Het inkomen van huishoudens krimpt hierdoor, wat een neerwaarts effect op de bestedingen heeft. Daarnaast krimpt ook de uitvoer door de verslechterde concurrentiepositie. Per saldo komt het bbp 0,4% lager uit.”
“Given the structural challenges in many labour markets, there is a mounting case for considering more radical fiscal approaches such as shifting taxation away from income (especially on incomes below the median income line) towards resources, carbon pollution and land.”
“Business leaders must therefore work openly with regulators, business and civil society to shape fiscal and regulatory policies that create a level playing field more in line with the Global Goals. This could involve fiscal systems becoming more progressive through putting less tax on labour income and more on pollution and under-priced resources.”
From: Business and Sustainable Development Commission (2017), BETTER BUSINESS BETTER WORLD. The report of the Business & Sustainable Development Commission
“Better Growth, Better Climate recommends that governments introduce strong, predictable and rising carbon prices as part of fiscal reform strategies, prioritising the use of the revenues to offset impacts on low-income households or to finance reductions in other, distortionary taxes.”
From: The New Climate Economy (2015), Seizing the Global Opportunity: Partnerships for Better Growth and a Better Climate 2015.
“We propose a measure that could go a long way toward leveling the playing field: a revenue-neutral tax on carbon, a major pollutant. A carbon tax would encourage producers and consumers to shift toward energy sources that emit less carbon—such as toward gas-fired power plants and away from coal-fired plants—and generate greater demand for electric and flex-fuel cars and lesser demand for conventional gasoline-powered cars.”
“The right level of the tax for the United States deserves careful study, but the principle of a lower starting rate with scheduled increases to an identified level has proven to be a good one in the five-year experience of a similar carbon tax in British Columbia. This gives time for producers and consumers to get accustomed to a carbon tax, and to discover how they can respond efficiently.”
“Clearly, a revenue-neutral carbon tax would benefit all Americans by eliminating the need for costly energy subsidies while promoting a level playing field for energy producers.”
From: George Shultz, Gary Becker (April 7, 2013) Why We Support a Revenue-Neutral Carbon Tax. The Wall Street Journal.
‘Value Extracted Tax (Ex’tax) is a great example of a necessary fundamental change that will have a tremendous positive impact on sustainability and at the same time will open our eyes to a new kind of prosperity.’
From: Prince Carlos de Bourbon de Parme
“..even if taxation in general is seen as distorting, because it alters the economic incentives of the free market system, seen as the most efficient form of allocation of resources, environmental taxation is instead considered corrective of a pre-existing distortion and therefore a way to limit the excessive use of natural resources. Transferring the tax burden also makes possible to preserve and increase employment levels, while at the same time stimulating technological innovation in the recycling industry itself.”
From: Ministry for the Environment – Italy, Land and Sea Ministry of Economic Development (2017),Towards a Model of Circular Economy for Italy Overview and Strategic Framework.
‘Shift the tax base from a tax on value added (labor and capital) to a tax on “that to which value is added”, namely the entropic throughput of resources extracted from nature (depletion), and returned to nature (pollution). This internalizes external costs as well as raises revenue more equitably. It prices the scarce but previously un-priced contribution of nature.
The value added by labor and capital is something we want to encourage, so stop taxing it. Depletion and pollution are things we want to discourage, so tax them.’
From: Herman E. Daly (2009), From a Failed Growth Economy to a Steady-State Economy. USSEE lecture, School of Public Policy, University of Maryland.
‘In bumper-sticker form, “Tax bads, not goods!”. The bads are depletion and pollution (throughput), and the goods are value added by labor and capital, that is, earned income.’
From: Herman E. Daly, Joshua C. Farley (2004), Ecological economics: principles and applications. Washington,DC, Island Press.
‘I’d like to focus more specifically on revenue neutral tax shifts where environmental taxes are used to finance tax reductions. (…) our failure to avail ourselves of environmental taxes and charges means we are missing revenue opportunities which could help us tackle important fiscal issues in our federal budget.’
‘My overall message is that green tax shifts can provide considerable flexibility to policy makers to achieve difficult political and economic goals while contributing to a cleaner environment.’
‘Any regressivity in the environmental tax can be offset by progressivity in the tax reductions financed by the new revenues.’
From: Metcalf, Gilbert (date unknown), Tax Reform and the Environment: Paying for Fundamental Tax Reform. Department of Economics, Tufts University, Medford, MA.
‘The GETS (Green Employment Tax Swap) reform uses the revenue to reduce payroll taxes by providing a rebate of the employer and employee payroll taxes on the ﬁrst $3,660 of earnings per worker. This amounts to a maximum rebate of $560 per covered worker. Given payroll tax collections of approximately $727 billion in 2005,15 a carbon tax of $15 per MT CO2 could lower payroll tax burdens on average by just under 11 percent. (…)The GETS reform beneﬁt is greatest for low-wage workers. For a worker earning $5,000 a year, nearly three-quarters of his or her payroll taxes would be rebated.’
‘while a carbon tax may be regressive, a carbon tax reform can be designed to be distributionally neutral. The use of the carbon tax revenue to lower payroll taxes makes this distributional neutrality possible.’
From: Metcalf, Gilbert (2007), A green employment tax swap: using a carbon tax to finance payroll tax relief. World Resources Institute, Policy Brief.
EEA has published many reports on Environmental Tax Reform (ETR, or the shift in taxation from labour to resources). Below is a selection of relevant quotes:
‘The polluter pays principle can stimulate a greening of the economy through taxes that allow market prices to reflect full costs of production, consumption and wastes. This can be achieved via greater use of fiscal reform which in addition to removing harmful subsidies, replaces distortionary taxes on economic ‘goods’ such as labour and capital, with more efficient taxes on economic ‘bads’, such as pollution and inefficient resource use.’
From: European Environment Agency (2010), The European environment – State and Outlook 2010. Synthesis. EEA Copenhagen.
‘ETR can increase real incomes for all groups and hence encourage employment, supporting the case for future ETR in the EU’
From: European Environment Agency (2012), Environmental tax reform in Europe:implications for income distribution. Technical report No 16/2011.
‘Studies have demonstrated that environmental taxes can achieve environmental objectives at the same time as raising revenues. Modelling shows that they also have a less negative effect on GDP compared to other types of taxes, such as direct taxes, for example income tax, or indirect taxes such as value added tax. This crucial feature of environmental taxes means countries could use them to support either fiscal consolidation or to reduce other taxes.’
From: European Environment Agency (2013), Green fiscal reform can create jobs and stimulate innovation across the EU.
‘Environmental fiscal reform can deliver five dividends:
1) increased resource productivity and eco‐innovation;
2) increased employment;
3) improved health of environments and people;
4) a more efficient tax system;
5) sharing the financial burdens of an ageing population also according to consumption.’
‘Shifting taxes towards resources creates powerful incentives to use fewer of them now. Simultaneously removing personal and employer taxes on labor creates new arenas of employment opportunity, since the cost of employment is reduced without lowering income.’
‘This in turn encourages many resource-saving activities, like closing the loops on material flows, disassembling products, and remanufacturing and repairing products, that currently look costlier than virgin resource use. This illusion is caused by keeping labor artificially expensive and raw materials artificially cheap.’
From: Paul Hawken, Armory Lovins and L. Hunter Lovins (2009), Natural Capitalism. Creating the next industrial revolution. Back Bay Books, New York.
‘Cutting income taxes while increasing gasoline taxes would lead to more rapid economic growth, less traffic congestion, safer roads, and reduced risk of global warming — all without jeopardizing long-term fiscal solvency. This may be the closest thing to a free lunch that economics has to offer.’
From: Mankiw, Gregory (May 24, 1999), Get Tax Now!. Fortune.
‘A good rule of thumb is that when you tax something, you get less of it. That means that taxes on hard work, saving and entrepreneurial risk-taking impede these fundamental drivers of economic growth. The alternative is to tax those things we would like to get less of.
Consider the tax on gasoline. Driving your car is associated with various adverse side effects, which economists call externalities. These include traffic congestion, accidents, local pollution and global climate change. If the tax on gasoline were higher, people would alter their behavior to drive less. They would be more likely to take public transportation, use car pools or live closer to work. The incentives they face when deciding how much to drive would more closely match the true social costs and benefits.
Economists who have added up all the externalities associated with driving conclude that a tax exceeding $2 a gallon makes sense. That would provide substantial revenue that could be used to reduce other taxes. By taxing bad things more, we could tax good things less.’
“We need to put a price on carbon. We need CO2 tax, revenue neutral, to replace tax on employment.”
From: Al Gore (March, 2008), TED TV.
‘For the last fourteen years, I have advocated the elimination of all payroll taxes – including those for social security and unemployment compensation – and the replacement of that revenue in the form of pollution taxes – principally on CO2. The overall level of taxation would remain exactly the same. It would be, in other words, a revenue neutral tax swap. But, instead of discouraging businesses from hiring more employees, it would discourage business from producing more pollution.’
From: Al Gore (18th September 2006), New York University.
‘labour is too expensive when considering its contribution to productivity whereas energy is – relatively speaking – under-priced. Under such conditions it is entirely rational when jobs are being eliminated, in particular because the expenditures for the social security system depend almost entirely on labour.
The labour market becomes de-coupled from growth with the consequence of decreasing tax revenues while social expenditures rise at the same time. It is thus necessary to adjust the optimal input of natural resources for wealth creation.
The economically rational mix for the input of labour, capital and material/energy must be shifted toward more work while reducing the input of natural resources.’
From: Friedrich Schmidt-Bleek (2004), Approaching and measuring sustainability. Factor 10 Institute.
‘Tax shifting involves changing the composition of taxes but not the level. It means reducing income taxes and offsetting them with taxes on environmentally destructive activities such as carbon emissions, the generation of toxic waste, the use of virgin raw materials, the use of nonrefillable beverage containers, mercury emissions, the generation of garbage, the use of pesticides, and the use of throwaway products. This is by no means a comprehensive list, but it does include the more important activities that should be discouraged by taxing. There is wide agreement among environmental scientists on the kinds of activities that need to be taxed more.’
From: Brown, L.R. (2001), Eco-Economy: Building an Economy for the Earth. W. W. Norton & Company, NY.
‘In a troubled world economy, where many governments are facing fiscal deficits, these proposed tax and subsidy shifts can help balance the books, create additional jobs, and save the economy’s eco-supports. Tax and subsidy shifting promise energy efficiency, cuts in carbon emissions, and reductions in environmental destruction—a win-win-win situation.’
‘Some 2,500 economists, including eight Nobel Prize winners in economics, have endorsed the concept of tax shifts. Harvard economics professor N. Gregory Mankiw wrote in Fortune magazine: “Cutting income taxes while increasing gasoline taxes would lead to more rapid economic growth, less traffic congestion, safer roads, and reduced risk of global warming – all without jeopardizing long-term fiscal solvency. This may be the closest thing to a free lunch that economics has to offer.’
From: Brown, L.R. (2008), Plan B 3.0: Mobilising to Save Civilization. W.W. Norton & Company, NY.
‘In a sustainable economy, taxes on renewable resources including work—human labour—are in fact counterproductive and should be re-thought. The resulting loss of state revenue could be compensated by taxing the consumption of non-renewable resources in the form of materials and energies, and of undesired wastes and emissions. Such a shift in taxation would promote and reward a circular economy with its local low-carbon and low-resource solutions. These are inherently more labour-intensive than manufacturing, because economies of scale in a circular economy are limited.’
‘Changing the tax focus will in itself foster the transition to a more sustainable economy in terms of both energy and materials’
From: Walter R. Stahel (2011), The Virtuous Circle? Sustainable Economics and Taxation in a Time of Austerity. Think Piece nr 63. CII.
‘The concept of a green tax shift is simple: taxes on the things that are valued by society; like jobs, incomes and profits; are reduced and the lost revenue is replaced by taxes on things society does not like, such as pollution and environmental degradation. ‘Pay as you burn, not pay as you earn’ as one political formulation has put it. This shift not only reduces pollution, but is a more economically efficient way of raising necessary tax revenues. Taxes on labour at their current level, for example, distort the economy and reduce its efficiency and output.’
From: The UK Green Fiscal Commission (2009), The Case for Green Fiscal Reform. Final Report of the UK Green Fiscal Commission. UK Commission.
Dutch Government’s Fiscal Agenda 2018:
[Translated, amongst others:] “The burden on labour can be reduced by increasing the reduced VAT rate and further greening of the tax system.”
[in Dutch] “De lasten op arbeid moeten omlaag, want dat is goed voor de economie en de werkgelegenheid. (…) De ruimte om de lasten op arbeid te verlagen ontstaat voor een deel door een verhoging van het verlaagde btw-tarief en verdere vergroening van het belasting-stelsel.4 Verbruiksbelastingen, zoals btw en milieubelastingen, zijn (economisch) iets minder verstorend voor de keuzes van mensen dan bijvoorbeeld de lasten op arbeid. Bovendien zijn de inkomsten van de btw stabieler en meer solide dan belastingen op inkomsten.6 Milieubelastingen beprijzen maatschappelijke kosten die niet (volledig) in prijzen van goederen en diensten tot uiting komen.”
From: Menno Snel, Minister of Finance, The Netherlands (February 23, 2018), Fiscale Beleidsagenda. https://www.rijksoverheid.nl/documenten/kamerstukken/2018/02/23/bijlage-%E2%80%93-fiscale-beleidsagenda
[translated] “This cabinet thinks it is sensible to impose taxes on what we do not want as a society (pollution) [rather] than on what we do want (work, entrepreneurship).”
[In Dutch] “Dit kabinet vindt het logisch om belasting te heffen op wat we als samenleving niet willen (vervuiling) dan op wat we wel willen (werken, ondernemen). Met de opbrengst van het sterker belasten van milieuvervuiling worden de belastingen op werken en ondernemen namelijk verlaagd. Het kabinet zorgt daarmee dat werk meer lonend wordt.”
From: Dutch Government website Overheid.nl (July 10, 2018), Wet minimum CO2-prijs elektriciteitsopwekking. https://www.internetconsultatie.nl/minimumco2prijs
“In addition to phasing out environmentally-harmful subsidies, environmental fiscal reform is necessary to tax the ‘bads’ (pollution, overconsumption of energy and resources, waste) not the ‘goods’ (labour).”
– From: Finance Watch, WWF European Policy Office, Greentervention, Positive Money Europe Fondation Nicolas Hulot (FNH), European Environmental Bureau (EEB), Climate Action Network (CAN) Europe (2019), Game-changer: Financing the European Green Deal. A civil society briefing on financing a fair ecological transition.
“Some of the measures proposed in this report, for example increased transparency and a tax shift from labour to resource use and pollution, address both the environmental and social impacts”
– From: Ecopreneur (2019), Circular fashion advocacy. A strategy towards a circular fashion industry in Europe.