Opinion, Publications

Green tax shift is a priority for new political party in Denmark

13th December 2016
Opinion, Publications

In Denmark, a new political party called Alternativet (the Alternative) [1] has made combatting climate change and rising inequality its main priorities.

The party, which claims to be an alternative to the mainstream left-right political paradigm, has plans to initiate a transition to a more sustainable and equitable economy – and green taxation is central to their agenda.

The group aims to step up efforts to implement Environmental Fiscal Reform (EFR) in Denmark. They have vowed to bring tax and spending into line with environmental goals by increasing taxes to polluters, phasing out harmful subsidies and creating economic incentives for green products and services.

Crucially, they intend to use the increasing revenue from green taxes to shift the burden away from income taxes in a socially equitable manner. Such a tax shift would therefore not only address environmental challenges, but also counter growing inequality in Denmark.

Green taxes are indeed largely regarded as more growth-friendly when compared to more distortive taxes, e.g. on corporate or personal income, and contribute to fiscal consolidation. International institutions such as the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD) and the European Commission itself [2] have all recently called for the inclusion of more environment-related taxes in national budgets.

“One of the fundamental reasons for the growing inequality is that the return on capital is far greater than the return on labour,” the group’s manifesto reads. “The Alternative will shift the tax burden so that labour is taxed less, while capital such as wealth, housing and inheritance are taxed more.” [3]

The reform aims to boost renewable energy and encourage resource efficiency by re-directing subsidies from fossil fuels to wind and solar energy, increasing taxes on polluting vehicles (both diesel and petrol), and making it more expensive for companies and consumers to produce and buy environmentally harmful products.

Notably, the programme emphasises increasing taxation on natural resources. A tax on resource extraction and use would indeed place Denmark in a competitive position in the race towards a circular economy – a strategy implemented by the EU to promote recycling and reuse. By introducing a pricing system that encourages resource-efficient business models and behaviour, the country would have the opportunity to reduce production costs, as well as spur new eco-friendly technology and jobs.

Denmark has a long history of successfully implementing market-based instruments (see GBE’s study on Denmark), having brought in a number of green taxes such as carbon taxes and water charges.

However, in 2014, Denmark recorded 8.2% of environmental taxes in total revenues against a 10.8% in 2004. Taxes on personal income, profits and gains, on the other hand, still account for a staggering 63% of total revenues – the highest share in rich countries. [4]

The Alternative is trying to seize the moment at a time where the tax burden in Denmark is on the rise. According to the OECD, it has increased by 3.3 percentage points, from 47.6% in 2013 to 50.9% in 2014. A more equitable tax shift would therefore pave the way for economic and environmental justice in Denmark.

[1] https://en.alternativet.dk/

[2] http://ec.europa.eu/economy_finance/publications/eeip/pdf/ip008_en.pdf

[3] https://en.alternativet.dk/political-program/

[4] https://www.oecd.org/tax/revenue-statistics-denmark.pdf