2021

“Shifting away from labour taxation to environmental taxes that are fit for purpose, with due consideration of possible distributional effects, has the potential to stimulate employment and change behaviour in favour of more sustainable consumption and production.”

“The transition towards climate neutrality can be a unique opportunity to reduce systemic inequality. Carbon pricing instruments, for example, raise revenues that can be reinvested to address energy poverty and mobility challenges for the vulnerable, spur innovation and economic growth, and create employment. This is not just a matter of fairness and solidarity it is a wider societal necessity to tackle inequities that existed before the European Green Deal and that would worsen without resolute action against climate change and towards zero pollution.”

From: European Commission (2021), ‘Fit for 55’: delivering the EU’s 2030 Climate Target on the way to climate neutrality. https://ec.europa.eu/info/sites/default/files/chapeau_communication.pdf

2020

“A well-designed tax system plays an important role in supporting the green transition. The use of taxation as a policy instrument will help to reach climate neutrality by 2050 as well as the other environmental objectives of the European Green Deal. In the process, it will also bring additional public tax revenues to public budgets to support the smart investments for a green transition. Environmental taxes help to provide the right price signals and right incentives to producers, users and consumers to encourage less polluting consumption and contribute to sustainable growth. They may also offer opportunities to reduce taxes in other areas, for example on labour, and if revenue for adequate social protection is protected, they can be a win-win option to address both environmental and employment issues.”

From: European Commission (2020), An Action Plan for Fair and Simple Taxation Supporting the Recovery Strategy. https://ec.europa.eu/taxation_customs/sites/taxation/files/2020_tax_package_tax_action_plan_en.pdf

2019

“Well-designed tax reforms can boost economic growth and resilience to climate shocks and help contribute to a fairer society and to a just transition. They play a direct role by sending the right price signals and providing the right incentives for sustainable behaviour by producers, users and consumers. At national level, the European Green Deal will create the context for broad-based tax reforms, removing subsidies for fossil fuels, shifting the tax burden from labour to pollution, and taking into account social considerations.”

From: European Commission (December 11, 2019), The European Green Deal. https://ec.europa.eu/info/sites/info/files/european-green-deal-communication_en.pdf

“The wider European goals to fight climate change, promote sustainable growth, jobs and investment, harness the benefits of digitalisation and secure a fair and sustainable social model, need swift and effective tax measures to support them.”

From: European Commission (2019), Towards a more efficient and democratic decision making in EU tax policy. https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52019DC0008&from=EN

2018

“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.” 

From: European Commission (2018), Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Italy and delivering a Council opinion on the 2018 Stability Programme of Italy.

“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.

2017

• “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.

2016

“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.

2015

“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.” 

From: European Commission (2015), Recommendation for a COUNCIL RECOMMENDATION on the 2015 National Reform Programme of Spain and delivering a Council opinion on the 2015 Stability Programme of Spain.

2014

 “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.

2013

“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.

2012

[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.”

From: European Commission (2012) Recommendation for a Council recommendation on Spain’s 2012 national reform programme and delivering a Council opinion on Spain’s stability programme for 2012-2015.

“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.

2011

 “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.

2010

“(…) 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.

2007

“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.

2005 

“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.

1997

[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.

1993

“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.