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A Fuel Tax Surcharge H2020-EURO-SOCIETY-2014 NOVEMBER 2018 Sustainability-oriented Future EU Funding: A Fuel Tax Surcharge Danuše Nerudová, Marian Dobranschi, Veronika Solilová, and Margit Schratzenstaller Danuše Nerudová, Department of Accounting and Taxes, Faculty of Business and economics, Mendel University, Zemedelska 1, 613 00 Brno, The Czech Republic E-mail: [email protected], tel: 00420776757766 Marian Dobranschi, Mendel University, [email protected] Veronika Solilová, Mendel University, [email protected] Margit Schratzenstaller, Austrian Institute of Economic Research, WIFO A-1030 Vienna, Arsenal 20, Austria E-mail: [email protected] The FairTax project is funded by the European Union’s Horizon 2020 research and innovation programme 2014-2018, grant agreement No FairTax 649439 FairTax WP-Series No.21 Sustainability-oriented Future EU Funding: Fuel taxation as future EU own resource Contents Abstract ........................................................................................................................................... 3 1 Introduction and background ................................................................................................ 4 2 Fuel taxes from a comprehensive sustainability perspective.............................................. 6 3 The current situation of fuel taxation in the EU .................................................................. 9 3.1 The bias within fuel taxation towards diesel vis-à-vis gasoline .................................... 9 3.2 The absence of regular inflation-adjustment of ETD minimum tax rates ................. 13 4 An EU fuel tax as tax-based own resource for the EU budget .......................................... 16 4.1 Design of an EU fuel tax as tax-based own resource .................................................... 16 4.2 Estimation of the revenue potential of an EU fuel tax ................................................. 17 5 Conclusions ............................................................................................................................23 6 References ..............................................................................................................................24 7 Appendix ................................................................................................................................29 8 Project information ...............................................................................................................39 2 FairTax WP-Series No.21 Sustainability-oriented Future EU Funding: Fuel taxation as future EU own resource Abstract The paper analyses the potential of a surcharge on national fuel taxes as sustainability- oriented own resource to finance the EU budget. Our estimations show that such a surcharge could yield substantial revenues, ranging between € 12.93 billion (for a surcharge of 0.03 €) and 86.2 billion (for a surcharge of 0.2 €) per year. Besides the contribution an EU fuel tax would make to various sustainability-related EU goals and strategies, it would help to address two specific problems inherent in the current EU system of fuel taxation. An EU fuel tax designed as a surcharge on national fuel taxes would decrease the existing tax bias in favour of diesel, as the surcharge would be levied uniformly on gasoline and diesel, which in most EU Member States is taxed at lower rates, alike. Moreover, by increasing national fuel tax rates, the surcharge would – depending on its level – mitigate or even remove the “under-taxation” of fuel in relation to the minimum fuel tax rates stipulated in the EU Energy Tax Directive in a number of Member States, which is caused by the absence of regular inflation adjustment of nominal fuel tax rates. Keywords: EU budget, sustainability-oriented taxation, tax-based own resources, fuel tax, EU system of own resources JEL classification code: F02, F36, F53, H23, H87 3 FairTax WP-Series No.21 Sustainability-oriented Future EU Funding: Fuel taxation as future EU own resource 1 Introduction and background1 Based on an increasing legal basis as well as on expanding international obligations, the European Union (EU) has become a global leader in environmental policy over the last decades (Selin and Van Deveer 2015). As one of the signatory parties of the Kyoto Protocol of 1997 aiming at the reduction of greenhouse gas (GHG) emissions, and by agreeing with the Copenhagen Accord of 2009, the EU committed itself to decrease GHG emissions by 80% against the 1990 emission level by 2050. In addition, by signing the 2015 Paris Agreement, the EU undertakes to cut its GHG emissions by 40% compared with 1990 levels by 2030. Most recently, the legal and governance framework for environmental policy at the EU level was complemented by the Sustainable Development Goals and the 2030 Agenda for Sustainable Development adopted by world leaders in 2015. Goal 13 of the altogether 17 Sustainable Development Goals demands to “Take urgent action to combat climate change and its impacts”. One element of a comprehensive strategy to enable the EU to live up to these commitments is to review all EU policies with respect to their actual and potential contributions to the EU’s sustainable development goals. The post-2020 Multiannual Financial Framework (MFF) of the EU is one of the issues which are intensely debated currently. The European Commission’s proposals published in May 2018 indeed aim at strengthening the EU budget’s sustainability orientation, inter alia by proposing to introduce two “green” new own resources – a plastic tax and a share in revenues from the auctioning of emission certificates – to partially replace Member States’ contributions to the EU budget. Member States’ reactions, however, to these proposals are dominated by the budgetary implications of the imminent Brexit, while the issue of making EU expenditures as well as the EU system of own resources more sustainable features by far less prominently in the debate (Schratzenstaller 2017 and 2019). While the European Commission’s proposals are an important first step towards a larger contribution of the EU budget to the EU’s sustainable development goals, the paper departs from the conviction that a more systematic and comprehensive approach to a reform of the EU system of own resources is indispensable. Departing from an innovative sustainability-oriented perspective for a fundamental reform of EU revenues comprising the environmental, social, economic, and cultural/institutional dimensions of sustainability developed by Schratzenstaller 1 We thank Andrea Sutrich for careful research assistance, and Claudia Kettner-Marx and Angela Köppl for valuable suggestions and comments. The research leading to these results has received funding from the European Union’s Horizon 2020 research and innovation programme 2014-2020, grant agreement No. FairTax 649439. 4 FairTax WP-Series No.21 Sustainability-oriented Future EU Funding: Fuel taxation as future EU own resource et al. (2017), we suggest to make use of sustainability-oriented tax-based own resources as alternative revenue sources to partially replace current Member States’ contributions to the EU budget to a much larger extent than proposed by the European Commission. Such sustainability-oriented tax-based own resources would establish the link between the EU system of own resources and the EU sustainability strategy and its climate goals which is completely absent currently. They are typically based on taxes that cannot be implemented effectively at the national level (Hudetz et al. 2017): in particular green taxes (e.g., Krenek and Schratzenstaller 2017, Luptacik and Luptacik 2017, Krenek, Sommer and Schratzenstaller 2018), or taxes on wealth (Krenek and Schratzenstaller 2018), corporate profits (Nerudová, Solilová and Dobranschi 2016), and financial transactions (Nerudová, Schratzenstaller and Solilová, 2017). This paper elaborates another green tax option, namely an EU fuel tax imposed as a surcharge on top of the gasoline and diesel excise duties already levied in all EU Member States. The role of environmental taxation, and especially of carbon taxes, as key market-based instrument is widely acknowledged in the literature (e.g. Kosonen and Nicodème 2009; Milne and Andersen 2014; Goulder et al. 2018). In the EU context, carbon taxes are of special relevance for the sectors not covered by the European Emission Trading System (ETS). Among these sectors is transport, where GHG emissions have been rising continuously in the past and are now making up for more than 20% of overall EU GHG emissions (Kettner-Marx and Kletzan-Slamanig 2018). Various strategic documents issued at the EU level stress the role of environmental taxes and particularly of fuel taxes as important tools to support the transition to sustainable transport2 and as one element of tax shifts making European tax systems more growth- and environmentally-friendly (e.g. European Commission 2017). This is the background against which we attempt at exploring the potential of fuel taxation as one sustainability-oriented tax-based own resource to finance EU expenditures. The paper starts with some basic remarks on fuel taxes from a sustainability perspective (chapter 2). After providing an overview of the current situation of fuel taxation in the EU (chapter 3), we estimate the potential revenues of a surcharge on existing fuel taxes levied in EU Member States (chapter 4). Chapter 5 concludes. 2 See for an overview European Environmental Agency (2017). 5 FairTax WP-Series
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