Social equity needs to be integrated in all future fiscal policies

Social equity needs to be integrated in all future fiscal policies

The recent “yellow vest” movement in France has pointed out the need to look into social equity concerns when introducing new fiscal measures, which aim to promote sustainability and low-carbon alternatives in our economies. This aspect has been underestimated during the past years when policies on resource efficiency and circularity have been devised.

We need to reconsider our approach to ensure that if and when proposals on market-based instruments and environmental fiscal reform are eventually implemented, they do not cause unnecessary conflicts within the lower income groups of society.

Green Budget Europe organised a seminar in November at the European Parliament in Brussels to discuss some of the results that had come up from a research study conducted by GBE together with two other organisations (IEEP and Ex’Tax) on the Finnish economy. The study looked more closely at different economic sectors and suggested concrete fiscal measures to reduce emissions, improve resource efficiency and lower labour taxes in Finland.

The results were very promising: by 2025, these instruments would increase GDP and employment by 1.2% while reducing CO2, SOx and NOx emissions by 6-8%, and energy imports by even more. The proposed measures would produce a tax revenue of €3.5 billion by 2025, which could be used to reduce labour taxes,  increase investments on R&D and research, and compensate poorer income groups accordingly.

One of the key messages of the study was that these changes have to be made gradually to enable the industry to prepare itself for a shift in production methods. In addition, the proposals contained specific measures to compensate and counter the economic impacts that some of the proposals could cause to the two lowest quintiles of society.

Looking at the latest news from France, this seems to be a vital element when planning environmental fiscal reform in our societies.

Spain provides an excellent example of how to proceed in this direction. According to an article published by The Guardian in October, its current government has announced that it will close most of its coal mines by the end of this year by providing a €250 million investment package during the next decade to regions that will be mainly affected. Teresa Ribera, Minister for Ecological Transition and member of GBE’s Advisory Committee, announced that the “aim is to leave no one behind”. The government has drawn up “Just transition” contracts, with the aim of helping the regions to consolidate the employment of the future.

Germany is likely to follow a similar approach: it has set up a Commission to identify an end date for coal use in Germany, which is due in early 2019. A major element of the phase out plan is very likely to be a similar compensation.

Similar measures should be introduced to other coal producing regions in Europe if we intend to break away one day from our current dependency on fossil fuels. The closure of coal mines has to be combined with efforts to secure new jobs, replacing the ones that have to disappear. 

In addition, the whole structure of national fiscal regimes should be reconsidered so that they put more emphasis on sustainable consumption by increasing taxes on the use of natural resources and pollution, and by reducing labour taxes accordingly.

Specific groups need to be taken into account when devising these measures. For instance, people living in the country-side, who are heavily dependent on car-driving, will be more affected than city-dwellers unless they are properly compensated.

Discussions on green economy are currently taking place in other countries and continents as well. Canada has introduced new measures to counterbalance the impacts of carbon taxes on household revenues. US Congress woman Alexandria Ocasio-Cortez speaks in the same direction in a recent interview.

“Just transition” is the new buzzword that should be taken into account in future plans to ensure that all sectors of society can survive and benefit from the major systemic change that we are currently facing.

Eero Yrjö-Koskinen
GBE Director

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