April 30, 2018
Guest blog post by Margit Schratzenstaller, Austrian Institute of Economic Research
In a few days the European Commission is going to launch its proposal for the post-2020 Multiannual Financial Framework, which is eagerly awaited by policy makers on the European and on Member State level alike. The documents released by the European Commission during the past year, in particular the „Reflection Paper on the Future of EU Finances“ issued in June 2017 (European Commission 2017) and the Communication on „A New, Modern Multiannual Financial Framework for a European Union that Delivers Efficiently on its Priorities Post-2020“ (European Commission 2018A) published in February 2018, already indicate the general thrust of the Commission’s forthcoming proposals: a clear focus on European added value not only on the expenditure side, but also with regard to the system of own resources financing EU expenditures.
This focus on European value added, which was demanded already in the Final Report of the High Level Group on Own Resources chaired by Mario Monti (HLGOR 2016), is to be as welcomed as it is overdue. The current system of own resources, which primarily consists of contributions by EU Member States, does not support at all central EU strategies and initiatives (Schratzenstaller et al. 2017; Hudetz et al. 2016). It does not contribute to the overarching goal of sustainable growth and development, as anchored in the Europe 2020 Strategy, the Sustainable Development Goals, and the 2030 Agenda for Sustainable Development. Neither is there any relation to the EU’s environmental and climate goals and strategies, in particular to the Paris Climate Agreement and the EU Action Plan for the Circular Economy (European Commission 2015).
To create such a link to the EU’s sustainability goals and strategies, the EU own resources system – independent of the imminent Brexit and the overall size of the post-2020 EU budget – needs to be overhauled fundamentally (Schratzenstaller 2017). The cornerstone of such a fundamental restructuring of the EU system of own resources are sustainability-oriented tax-based own resources which can partially replace current contributions by Member States. Candidates most suited for such tax-based own resources are such taxes that cannot be levied effectively on Member State level due to tax competition, tax avoidance, or cross-border externalities (e.g. environmental damage). Such a fundamental reform would create space for Member States to reduce their contributions to EU budget and to decrease less sustainability-oriented national taxes accordingly, in particular taxes on labour which are generally (too) high in the EU.
In the last few months, the European Commission’s Budget Commissioner Guenther Oettinger has been bringing an interesting option for such a tax-based own resource into play: A tax on plastic, which, as one instrument within a comprehensive policy mix, could curb plastic production and consumption which have harmful effects for environment and health. It would thus help to drive the transition towards a sustainable plastic industry, as envisaged by the European Strategy for Plastics in a Circular Economy (European Commission 2018B). A plastic tax is a „natural-born“ EU own resource, due to the cross-border nature of plastic waste and fossil fuel use connected with plastic production. The EU-wide implementation of a plastic tax on a harmonised basis would overcome the existing fragmentation caused by differing tax provisions in Member States related to the production and/or consumption of plastic.
Plastic is a very complex issue, and so is the issue of its taxation. Therefore, more research on the design options for a plastic tax as well as impact assessments are urgently needed to create a solid evidence-based foundation for the introduction of a fully-fledged plastic tax. A first, short-term step towards the introduction of a fully-fledged plastic tax would be the implementation of an EU-wide harmonised plastic bag tax. The EU Plastic Bags Directive requires Member States to put a price on lightweight plastic bags and/or to introduce national reduction targets, with the goal to reduce lightweight plastic bag use per person in every Member State to a maximum of 90 bags by the end of 2019 and of 40 bags per person by the end of 2025. Currently 15 EU Member States levy a plastic bag tax already; at tax rates between 0.03 € and 0.30 €.
In those Member States for which figures are available, the plastic bag tax prove very effective as an instrument to reduce plastic bag use, with reduction rates ranging between 50 percent (Denmark and Malta) and 90 percent (Ireland and Portugal) (Martinho et al. 2017).
There are little obstacles to the EU-wide introduction of a plastic bag tax based on harmonised provisions and the transfer of tax revenues to the EU as a tax-based own resource. The low rates of an EU-wide plastic bag tax as well as the easy availability of alternatives to plastic bags would mitigate distributional concerns that are normally connected with consumption taxes and would also make a uniform tax rate across Member States politically acceptable. Such a plastic bag tax is, as recent experiences in various Member States shows, easy to implement. Its introduction is possible within the existing legal EU framework, i.e. without Treaty changes, based on Articles 192 and 194 of the EU Treaty.
Due to the substantial tax-induced reduction of plastic bag use, the steering effect of a plastic bag tax can be expected to dominate over the revenue raising aspect, implying a rather limited revenue potential of the tax, which would facilitate the political acceptance of a transfer of plastic tax revenues to the EU level. Dependent on the assumptions about the tax-induced reduction of plastic bag use and the tax rate, the potential yearly revenues for the EU26 (excluding UK and Croatia) may range from € 0.4 billion (assuming a 95% reduction of plastic bag use and a tax rate of € 0.05) to € 7.5 billion (assuming a 50% reduction of use and a tax rate of € 0.20).
Altogether, a plastic bag tax is one option for sustainability-oriented tax-based own resources worth considering within a basket of further “green” own resource options: for example a carbon-based flight ticket tax (potential revenues between € 3.9 billion and € 5.4 billion; Krenek/Schratzenstaller 2017); a supplement to fuel taxes (potential revenues between € 13 billion and € 86 billion; Nerudová et al. forthcoming); or a border carbon adjustment for the European Emission Trading System (ETS) (potential revenues between € 21 billion and € 54 billion; Krenek/ Sommer/ Schratzenstaller 2018).
A reform of the EU system of own resources along these lines would be a very effective complement to a shift of EU expenditures towards true European public goods considerably increasing the European added value created by the EU budget.
European Commission, Closing the Gap – An EU Action Plan for the Circular Economy, COM(2015) 614 final, Brussels: European Commission, 2015.
European Commission, Reflection Paper on the Future of EU Finances, Brussels: European Commission, 2017.
European Commission, A New, Modern Multianual Financial Framework for a European Union that Delivers Efficiently on its Priorities Post-2020, COM(2018) 98 final, Brussels: European Commission, 2018A.
European Commission, A European Strategy for Plastics in a Circular Economy, COM(2018) 28 final, Brussels, 2018B.
High Level Group on Own Resources, Future Financing of the EU, Brussels: High Level Group on Own Resources, 2016.
Hudetz, Alexander, Mumford, Ann, Nerudová, Danuše, Schratzenstaller, Margit, Editorial: Reform Needs and Options in the EU System of Own Resources, Empirica, 2017, 44(4), pp. 609-613.
Krenek, Alexander, Schratzenstaller, Margit, Sustainability-oriented Tax-based Own Resources for the European Union: a European Carbon-based Flight Ticket Tax, Empirica, 44(4), pp. 665-686.
Krenek, Alexander, Sommer, Mark, Schratzenstaller, Margit, Sustainability-oriented Future EU Funding: A European Border Carbon Adjustment, FairTax Working Paper, No. 15, 2018.
Nerudová, Danuše, Dobranschi, Marian, Solilova, Veronika, Schratzenstaller, Margit, Fuel Taxation as Future EU Own Resource, FairTax Working Paper (forthcoming).
Martinho, Graca, Balaia, Natacha, Pires, Ana, The Portuguese Plastic Carrier Bag Tax: The Effects on Consumers‘ Behavior, Waste Management, 61(3), pp. 3-12.
Schratzenstaller, Margit, The Next Multiannual Financial Framework (MFF), its Structure and the Own Resources, Study commissioned by the European Parliament, Vienna: Austrian Institute of Economic Research, 2017.
Schratzenstaller, Margit, Sustainability-oriented Future EU Funding: A European Plastic Tax, FairTax Policy Brief (forthcoming).
Schratzenstaller, Margit, Krenek, Alexander, Nerudová, Danuše, Dobranschi, Marian, EU Taxes for the EU Budget in the Light of Sustainability Orientation – A Survey, Jahrbücher für Nationalökonomie und Statistik, 2017, 237(3), pp. 163-189.
Margit Schratzenstaller has been working as a Senior Researcher (Public Finances) at the Austrian Institute of Economic Research (WIFO) since April 2003. Since January 2016 she is deputy director at WIFO. She is expert in the Austrian Fiscal Council and member of the Board of Trustees of the European Forum Alpbach, and she teaches at the University of Vienna. Her field of expertise covers (European) tax and budget policy, tax competition and harmonisation, fiscal federalism and gender budgeting. She was deputy coordinator of the FP7 EU project WWWforEurope and now is partner in the H2020 EU project FairTax (www.fair-tax.eu).