1

LET A HUNDRED SOLUTIONS BLOSSOM

Asia Pacific Finance and Development Center 2010 Biennial

Forum

Michael MossakowskiSenior Adviser on environmental taxation to the Secretary of State for Finance (Belgium, Europe)

2

CONTENTSCONTENTS

1. Introduction

2. Achievements 2008-2009-2010

3. Conclusions

3

1.1. Introduction (2)Introduction (2)Where does Belgium standWhere does Belgium stand

4

1.1. Introduction (2)Introduction (2)Where does Belgium standWhere does Belgium stand

GREEN HOUSE GAS EMISSIONS

Transport 18%

Buildings 22%

Energy production 21%

Industry 19%

Industrial processes 10%

Agriculture 8%

Other & waste 2%

5

1.1. Introduction (2)Introduction (2)Where does Belgium standWhere does Belgium stand

Environmental taxation (in % of GDP) Environmental taxation (in % of GDP)

Source : Eurostat (2008), Taxation Trends in the European Union

6

2. Achievements2. Achievements

• General Objectives• Green loan initiative • Roof, wall and floor insulation tax credit• Electric car & motorcycle plan • Passive house & low energy house tax credit• CO² based company car tax

7

2. Achievements: Objectives2. Achievements: Objectives

INTRODUCE MORE EFFICIENT TAXATIONINTRODUCE MORE EFFICIENT TAXATION

Expected dividends:Expected dividends: Fight climate change Fight climate change (use less energy so lower emissions)(use less energy so lower emissions) Create jobsCreate jobs (in energy saving or producing industries) (in energy saving or producing industries) Enhance competivityEnhance competivity (by encouraging green industries) (by encouraging green industries) Energy independence Energy independence (less imports more alternative (less imports more alternative

energy)energy) More disposable incomeMore disposable income (by lowering energy bills) (by lowering energy bills)

8

Government pays part of the interest on bank loans used for energy saving in homes. Maximum loan € 15.000.

Lower financial cost for all private citizens Government pays 1,5% of the interest on the loan 40% tax credit on the remaining interest

2.1 Achievements: Green Loan2.1 Achievements: Green Loan

9

Existing 40% tax credit for roof and window insulation, new efficient boilers and solar energy are extended to insulation of

1. Walls2. Floors

+ Tax credit limited to € 3.000/year but portable over 4 years+ If citizen pays no taxes Government pays citizen+ Energy efficiency cannot be invoked to increase local taxes on house

2.2 Achievements: Insulation tax 2.2 Achievements: Insulation tax creditscredits

10

2.3 Achievements:2.3 Achievements: Electric vehicle plan Electric vehicle plan

– 30% tax reduction for electric cars (max € 9.000)– 15% tax reduction for electric motorcycles– Tax reduction for recharging points

11

2.4 Achievements:2.4 Achievements:Low Energy new housingLow Energy new housing

Existing tax reductions for passive housing (< 15 kWh/m²/year – N < 60% @ 50 Pa) are complemented by 2 new categories

- « Low Energy » housing (< 30 kWh/m²/year)

- « Zero energy » housing (=or< 0 kWh/m²/year and N < 60%)

12

2.5 Achievements2.5 AchievementsCompany car taxCompany car tax

New rulesNew rules

Are company cars bad for the environment? Company cars are kept for no more than 4 years and newer cars emit less

The advantage in kind for personal income tax purposes depends on emissions instead of engine size (previously)

Companies can deduct according to emissions (50 to 120%) Fuel is only 75% deductible for companies (previously 100%)

13

3. Conclusions3. Conclusions

1. Are carrots more efficient than sticks?

1. Who gets to eat the carrot? Only a few

2. Who gets the stick?

2. The role of the state

1. Set level playing fields

2. Technological neutrality

• What we would have liked to do…

14

3.1. Green 3.1. Green Tax ShiftTax Shift

Shift taxes from labour to energy:

Increase duties on fossil fuels to reflect externalitiesDecrease taxes on labour by the same amount

Expected dividends:• More disposable incomeMore disposable income (by lowering energy bills) (by lowering energy bills) Create jobsCreate jobs (in energy saving) (in energy saving) Enhance competivityEnhance competivity (by encouraging green industries) (by encouraging green industries) Energy independence Energy independence (less imports more alternative energy)(less imports more alternative energy) Fight climate change Fight climate change (use less energy so lower emissions)(use less energy so lower emissions)

15

3.1. Green 3.1. Green Tax ShiftTax Shift

Source : OECD (2008), Energy Prices and taxes

% of taxes in road fuel prices (diesel)

16

3.1. Green Tax Shift3.1. Green Tax Shift

Implicit taxation per ton of CO² - 2007

17

3.1. Green 3.1. Green Tax ShiftsTax Shifts

Expected problems:

• Regressivity: increases social disparitiesRegressivity: increases social disparities– Heating fuels: yesHeating fuels: yes– Transport fuels: noTransport fuels: no

• SolutionsSolutions– Concentrate tax cuts on smaller incomesConcentrate tax cuts on smaller incomes– More public transportMore public transport

18

3.1. Green 3.1. Green Tax ShiftTax Shift

Source : OECD, employment database

Employment

Unemployment rate

Employment perspectives for ages 15 to 24 (2007)

19

3.2 Environmentaly harmful 3.2 Environmentaly harmful fiscal subsidies fiscal subsidies

Example 1

Intra-european air travelVAT = 0% and Excises on jet fuel = 0!Brussels to Nice (South France) by car, taxes = € 83Brussels to Nice (South France) by air, taxes = € 5

Example 2

Heating coal.VAT 12%. Normal rate 21%

20

3.3 Congestion charging3.3 Congestion charging

Congestion

AccidentsNoiseAir pollution

Taxes

21

Environmental taxation’s essential task is to:

• Internalize external costs• With a clear long term perspective (increasing carbon tax)• Not to decide which solution is best , but • Let the private sector work out the best answer to dealing with finite ressources, and doing so help A HUNDRED SOLUTIONS BLOOM

)

22

Michael MossakowskiSenior Adviser on environmental taxation to the Secretary of State for Finance (Belgium, Europe)

THANK YOU