Environmental targets ‘could damage tax systems’

Current EU environmental policy targets could negatively impact tax systems. They will have implications for the design of European tax and financial systems in the future, according to a new […]

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By Jonny Bairstow

Current EU environmental policy targets could negatively impact tax systems.

They will have implications for the design of European tax and financial systems in the future, according to a new report from the European Environment Agency (EEA).

The transport and industrial sectors are two of the main areas in which environmental taxes are most commonly used and draw the highest revenues.

Schemes to introduce and encourage low-emission and low carbon technologies in these sectors can erodeĀ “tax bases” that are heavily relied upon as a source of finances, the EEA states.

An example it cites is the Dutch car registration tax scheme, which has influenced car buyers to purchase smaller, lower carbon emitting vehicles, leading to a fallĀ in tax revenues.

Its report adds fuel tax revenues will also decrease when petrol and diesel sales drop as the EU moves towards its climate policy targets.

Outside environmental issues, the elderly population will increase while the level of labour supply will decrease, leading to a reduction in income tax revenue.

The EEA states: “The report recommends considering these and related challenges such as economic competitiveness and distributional implications together when policymakers study the potential for tax-shifting programmes between labour and environmental taxes in the design of resilient, long term tax systems for a future green economy.”