Workshop on Ecological tax Reform (ETR)
Marc van der Valk, Aktie Strohalm the Netherlands and Stefan Speck, Wuppertal Institute.
Tuesday 24 October 1995

Among the issues discussed were the following:

• The need for economic instruments, given the domination of the economy in social development and the importance of proper price signals in market economies. Economic instruments can work fast and tend to give continuous incentives for improvements.
• ETR is an integrated systematic approach, as opposed to the piecemeal engineering of green taxes we see in many countries. *
• Taxing means reducing (whatever you tax). Therefor: tax the 'bads', not the 'goods'. Use this combine and environmental goals, by taxing resource use and not labour.
• Internalization of external costs, or reducing the shift of burden by producers on to society and/or environment.
• Research in western countries has how that this can increase employment, while reducing resource use and pollution, without adverse effects on the state budget or the profitability and competitiveness of businesses, or the incomes of the poor.
• In most European (west, central, eastern) countries some form of 'green taxes' exist, ranging form product charges to carbon/energy taxes, and from incentives for the use of unleaded petrol to the British 'road fuel price escalator' (a yearly rise of 5% for an indefinite period).

Major discussion issue: Revenue recycling or what to do with the revenue?

Basically the revenues can be used in two ways:

I. Spend them. Question: On What and Why?

II. Reduce other taxes. Question: Which and Why?

The preferences may be different for people in different positions, and in different countries.

ad.I.
The revenues might be earmarked, i.e. used for specific purposes, like environmental policy only. This makes sense if the state is not capable or willing to generate the means in other ways, especially if investments in environmental infrastructure is nec essary. With respect to the environment an earmarked tax cuts in two ways. However there is no (direct) employment effect. In eastern Europe environmentalists favour such earmarked revenues, whereas in western Europe is the business and other vested inter ests that favour it.

This is because earmarking implies that the justification for green taxes lie in the fact that they can finance green policy. Business circles tend not to agree that green taxes can be used to internalize external costs to a great extend, that the justifi cation lies in the fact that people have to pay for extracting value from the world heritage.

Earmarking denies the logic and the legitimacy of 'tax the bads, not the goods'. It also means that the new, environmental taxes are extra taxes. The state budget grows, the overall burden rises. This is politically unacceptable in the west.

ad.II. The revenues can be used to reduce other taxes, especially those on labour.

It has been shown that reducing taxes and SSC's, especially for the least paid workers, has a large beneficial effect on employment. The reductive aspect of the tax still produces a positive effect on the environment. A proper tax shift, from labour onto resource use and pollution, triggers a major economic restructuring, that is necessary (though not sufficient) for sustainable development.

Towards a Pan-European Campaign?

ETR would be all the more powerful if applied all over Europe. This would strengthen our position. It makes sense, therefor to try and launch a Pan-European Campaign for ETR. We discussed this possibility. Major problems that were recognized: lack of info rmation in CEE on taxation structure, resource use, etc.; governmental institutional structures in the process of transition and NGO capacity; expected opposition from the industry; probable job losses. Consequently, research into the feasibility of ETR in some CEE countries has to be done. This might be done in a joint effort in cooperation with and/or in cooperation with the Wuppertal Institute. Funding will be sought for this issue.

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