Danish experiences

Søren Dyck-Madsen

The Danish Ecological Council - DEC

Revenues from environmentally related taxes in per cent of GDP

Distribution of the Danish Tax Revenue in 2000 in billion DKK

Income taxes Company taxes

Green taxes VAT

Land tax Others

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

Green taxes can be high 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

Some examples of Danish Green taxes

Tax on Organic Chlorinated Solvents

Tax on Growth Promoters (Antibiotics) accompanied by a voluntary agreement with Agriculture

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

The (small) Tax on Organic Solvents was introduced in 1996

Tax on Growth Promoters / Antibiotics

0

5

10

15

20

25

30

35

40

1997 1998 1999 2000 2001 2002 2003

Mio. DKK

Cars per 1000 Inhabitants in 1995

Cars per 1000 inhabitants in 1995

195211

220258270

302

340351360363

366371

386411418

433445447457

463465467

495

552563563

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

”Rules” for anEnvironmental Tax Reform

Should target relevant and important environmental problems and be effective to reduce those problems

Should be distributional neutral – increasing green taxes should be followed by reducing other taxes in a way so that the poorest will not be hit the hardest

Should be revenue neutral – a reform is not created to increase state incomes and might not be accepted by the public if increasing the overall tax burden

Should additionally reduce environmentally harmful subsidies

Environmental problems to be Targeted by Economical Instruments

Green House gases – especially CO2 – but also industrial GHG’s like SF6, HCFC

Overuse of natural ressources Too much traffic Too much energy used Protecting ground water Use of hazardous Chemicals Too much waste produced Avoid urban sprawl

A real Danish tax shift

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 as part of an environmental tax reform in the public and in industry

Information and Public Acceptance

It is therefore very important to give good information about the environmental problems that is going to be targeted and to underline that Environmental tax Reforms do have two sides:

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

Spending of revenues 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

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 – which will increase the overall tax burden

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

Revenues can stabilise green politics

Revenues are not the normal goal for green tax reforms

But do consider the revenues anyway since revenues tend to be rather steady while governments change

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

Public acceptance is the key problem for an Environmental Fiscal Reform

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 negative 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 better 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 Danish elections 2001.

The DEC 2002 proposal for a Danish Green Tax reform

The Danish Environmental problems should be reduced

The income distribution should not be changed

Industry’s competitiveness should not be harmed

The total tax burden on households and industry should be neutral

More jobs should be created

In economic terms the proposed Danish Tax Reform would shift additionally 9% of the total Danish tax revenue from income taxation to environmental taxes gradually from 2002 to 2010 – so the total revenue from environmental taxation in 2010 will make up about 18,5% of the total tax revenue.

Energy and GHG’s

Increase tax on extraction of oil and natural gas in the North Sea + 3.7 Increase carbon tax + 3.8 Increase energy tax for electricity in households + 6.3 Increase energy tax for oil, coal and natural gas in households + 8.5 Phase out rebates on carbon tax for energy extensive industry + 1.7 Lower rebates on carbon tax for energy intensive industry + 1.9 Taxing Carbon emissions from flaring from oil platforms + 0.3

All numbers in billion DKK - 1 billion DKK is apx. 33.5 billion HUF

Transport

Increase taxes on Petrol and diesel + 1.0 Introduce road pricing differentiated according to environmental

performance of cars + 10.8 Increase steps in the environmental car owner tax (steps moved 5 km/litre) + 2.0 Increase registration tax for energy ineffective cars + 1.0 Remove tax rebates for transport to job + 2.0 Tax fuel for airplanes and ferries/ships + 5.3

Tax diesel vehicles without particle filters – Reverse for installation of filters Neutral Tax fuel use for Public transport – Reverse as subsidy for labour

costs for drivers Neutral Tax energy extensive electrical appliances and subsidy energy effective

appliances Neutral

Others

Increase tax on pesticides + 0.1 Industry pays full tax on piped water + 0.7 Increase tax on chlorinated solvents + 0.0 Tax unwanted chemicals + 3.0 Increase tax on solid waste + 0.7 Increase tax on waste water + 0.5 Tax advertising, e.g. handouts, fliers, commercials, brochures + 4.0 Increase tax on PVC and phthalates + 0.1 Tax high pressure treated wood and timber + 0.0

Remove Environmentally Harmful Subsidies

Reorganize or remove subsidies for agriculture Remove subsidies for energy based on fossil fuels or nuclear More jobs and a broadened tax base gives an effect Savings in expenditures for environmental damage

Use of the Revenue / Neutrality

Reduce the rate of ordinary income tax low bracket from 5,5 % to 1,0 % - 30.3 Increase the income tax threshold with 5.000 DKK - 8.0 Reduce the VAT on organic food products and ecolabelled products - 2.0 Social compensations by increasing child allowances, educational aid, retired

peoples pensions and other social allowances - 6.0

Compensation for higher green taxes to industry according to labour expenses - 6.2 Funding for introducing cleaner technology - 2.5 Changing taxation and write offs for environmental friendly investments - 1.5

Increase investments in railway, tram, metro, bus light rail - 1.0

All together - 57.5

www.ecocouncil.dk/english/