Danish experiences and recommendations

for the implementation of Green Budget reforms

and for the use of Green taxes

Søren Dyck-Madsen

The Danish Ecological Council

Distribution of the Danish Tax Revenue in 2000 in billion DKK

Income taxes Company taxes

Green taxes VAT

Land tax Others

Revenues from environmentally related taxes in per cent of GDP

Danish Green Taxes in % af GDP

0

1

2

3

4

5

6

70

72

74

76

78

80

82

84

86

88

90

92

94

96

98

20

00

20

02

20

04

% o

f G

DP

Some examples of Danish Green taxes

Tax on Organic Chlorinated Solvents Tax on Growth Promoters (Antibiotics) accompanied

by a voluntary agreement with Agriculture Danish Energy Taxes Danish Transport Taxes

Annual Consumption of Taxed Organic Solvents

0

200

400

600

800

1000

1200

1400

1992 1993 1994 1995 1996 1997 1998

Tonnes per year

Dichlormethan Trichlorethylen Tetrachlorethylen

Tax on Growth Promoters / Antibiotics

0

5

10

15

20

25

30

35

40

1997 1998 1999 2000 2001 2002 2003

Mio. DKK

Danish CO2 Emissions

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

45.000

1980

 

1981

 

1982

 

1983

 

1984

 

1985

 

1986

 

1987

 

1988

 

1989

 

1990

 

1991

 

1992

 

1993

 

1994

 

1995

 

1996

 

1997

 

1998

 

1999

 

2000

 

2001

 

1000 tons CO2

Extraction and Raffining Energy production

Transport Production

Trade and Servicesector Households

Energy use in Transport

0

20.000

40.000

60.000

80.000

100.000

120.000

140.000

160.000

180.000

1980

 

1981

 

1982

 

1983

 

1984

 

1985

 

1986

 

1987

 

1988

 

1989

 

1990

 

1991

 

1992

 

1993

 

1994

 

1995

 

1996

 

1997

 

1998

 

1999

 

2000

 

2001

 

TJ

Roadtransport Railways Domestic seatransportAirtransport domestic Airtransport International

Cars per 1000 Inhabitants in 1995

195

211

220

258

270

302

340

351

360

363

366

371

386

411

418

433

445

447

457

463

465

467

495

552

563

563

0 100 200 300 400 500 600

Poland

Greece

Hungary

Portugal

Ireland

Czech rep.

Denmark

Spain

J apan

NL

UK

Finland

Norway

Sweden

Belgium

France

Iceland

Austria

Schwitzerland

New Zealand

Australia

Canada

Germany

Italy

USA

Luxembourg

Number of Danish Vehicles

0

200.000

400.000

600.000

800.000

1.000.000

1.200.000

1.400.000

1.600.000

1.800.000

2.000.00019

80 

1981

 

1982

 

1983

 

1984

 

1985

 

1986

 

1987

 

1988

 

1989

 

1990

 

1991

 

1992

 

1993

 

1994

 

1995

 

1996

 

1997

 

1998

 

1999

 

2000

 

2001

 

2002

 

Private cars Vehicles 2.000-3.500 kg

Driven Kilometers

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

19

80

 

19

81

 

19

82

 

19

83

 

19

84

 

19

85

 

19

86

 

19

87

 

19

88

 

19

89

 

19

90

 

19

91

 

19

92

 

19

93

 

19

94

 

19

95

 

19

96

 

19

97

 

19

98

 

19

99

 

20

00

 

20

01

 

Mio. driven km

Experiences and Recommendations

Green taxes are very useful targeting environmental problems and recommended by EU-Commission, the OECD and many others

But it is hard to create public understanding and acceptance for green taxes in the public and in industry

Information and Public Acceptance

Environmental tax reforms do have two sides:

Taxes on environmental harmful products, behaviour, land-use and non-renewable resources

Revenue returning from the green taxes to lower taxes on labour, secure the social fair economic distribution, secure industrial competitiveness, subsidising environmental actions like improving energy efficiency and others

It’s good to remember

Prepare the public for the environmental tax by:

Highlight the environmental problems that you want to address very well ahead of the budget negotiations

Maybe make a survey that underlines the environmental problems

Inform the public about the environmental problems in order to get public acceptance of the taxes as an effective instrument to mitigate the problems

Revenues

Some green taxes do create revenues even though the tax itself are meant to reduce the tax base

Other green taxes are meant to be reduced to zero as the tax fulfils it’s own purpose and eliminates the use of the product

How to Spend the Revenues

Earmarking of revenue for environmental purposes

Revenue in the State Budget to finance overall State expenditures. Expenses for environmental purposes are decided in the State Budget

A mixture of the two – which can be very convenient in practical politics

Returning of Revenues should fulfil several goals

Social impacts should be neutral or slightly positive

Industrial effects on competitiveness should be neutral or at least not so heavy that they forces the companies to close down or move abroad

Should be revenue neutral – or a very well targeted way of raising revenue needed instead of increasing other taxes such as income taxes

Green taxes can be introduced without harming industrial competitiveness

1: Finland

2: USA

3: Sweden

4: Denmark

5: Taiwan

Ranking of world growth competitiveness according to a 2003 report by the World Economics Forum

6: Singapore

7: Switzerland

8: Iceland

9: Norway

10: Australia

Revenues can stabilise green politics

Revenues are not the normal goal for green tax reforms

But do consider creating revenues anyway since revenues tend to be rather stable while governments change

But argue always with the benefits for the environment, for the national economy and for the employment

Recommendations for the returning of revenues from the PETRAS project

Appoint an independent body to ensure that revenues from green taxation are used as promised if huge mistrust in governments exists.

Highlight the tax reduction on people’s payroll slips. Give a lump sum – maybe as a yearly green check –

to everybody. Introduce a free basic consumption for households –

taxing overuse additionally hard. Do take care in terminology

A real Danish tax shift

Public acceptance is the key problem for an Environmental Fiscal Reform –

Summary:

Inform about the environmental problems the EFR is going to target

Make the use/returning of the revenue very clear Neutralise regressive effects in income distribution Neutralise effects on industrial competitiveness Consider to use parts of the revenue for additional

environmental purposes in order to ”give people something for the money” - But do remember that revenues from green taxes can be used for hospitals too

Broad political coalitions in order to avoid misuse of green taxes

Because of the difficulties for the public to understand the construction of a green tax reform it is advisable to seek a broad coalition behind the green taxes in order to make the reform more stable and predictable for both households and especially for industry.

  A broad coalition also minimises the risk that one or

more parties do misuse the visible parts of the green tax reform against the present government in an election campaign – as we saw in the latest Danish elections.

Lowering of VAT on certain products and sectors

Lowering of VAT for certain sectors can be part of an overall green budget reform, but must be considered very carefully.

Differentiation in VAT is for sectors. This makes it an expensive instrument for environmental purposes, but a good instrument for unemployment reasons.

Remember that revenues lost by reducing VAT will lead to the increasing of other taxes.

Therefore it often is better to think in subsidies, that can be applied much more precise for environmental reasons, and because of that are much “cheaper” for the State Budget.

Coordination of energy and carbon taxes with emissions trading system

The introduction of a EU wide internal emissions trading system will require a review and maybe reconstruction of some green taxes on energy, fossil fuels and carbon.

The connection between the two kinds of regulatory instruments for environmental purposes is not clear

More elaboration is needed – but for sure most e.g. most energy taxation – like taxes on household use of electricity can stay unchanged if desired.