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Kai Schlegelmilch*Federal Ministry for the Environment, Nature Conservation and Nuclear Safety, Berlin/GermanyGreen Budget Reform in Germany – Results and Perspectives2nd-3rd September 2004, Budapest, HungaryInternational Conference “Environmentally harmful subsidies and ways to eliminate them“*Though views expressed here represent government positions in general, they are made on a personal capacity.

environmentally damaging subsidies eds definition and volume in germany
Environmentally Damaging Subsidies (EDS): Definition and Volume in Germany
  • Definition is difficult and tricky
  • All subsidies (expenditures and tax expenditures) that contribute to damaging the environment
  • EDS also comprises the non-internalisation of external costs as it is a subsidy to the market-economy
  • No official volume estimations,studies: between 2.1 and 43 billion € p.a. (FiFo/FoE)
  • 19th Government Subsidy Report: General subsidies:21.4 bn €:8.2 = expenditures and 13.2 = tax expendituresBut a limited scope: E.g. commuters tax reduction of 3 bn. € is not included
national climate protection programme 2000
National Climate Protection Programme 2000
  • Ecological Tax ReformInternalising external costs = reducing subsidies to the market-economy
  • National Allocation PlanOverallocation could be considered as subsidy, however none takes place in Germany. In fact, real reductions have to be achieved.
  • Promotion of rail transportProviding for a level playing field by catching up investment unbalances:Investment of 1 bn. € p.a. in rail infrastructure
  • Transport-related measures:such as the heavy vehicle charge on motorways to be introduced by 2005 (initially in summer 2003).
  • Update of the National Climate Protection Programme:foreseen for 2004 (initially by 2003, postponed due to ETS)
features of etr in germany i regular rates
Features of ETR in Germany (I)- Regular Rates

Steady increases in 1999-2003:

  • Electricity tax 1.02 Ct/kWh in 1999 (+0.26 Ct/kWh p.a. between 2000-2003)
  • Mineral oil taxes on transport fuels: + 3.07 Ct/litre p.a. between 1999-2003)

Single increase in 1999 and 2003 only:

  • Tax on natural gas + 0.16 Ct/kWh + 0.202 Ct/kWh
  • Tax on light heating fuel: + 2,05 Ct/litre
features of etr in germany ii reduced rates
Features of ETR in Germany (II) – Reduced Rates
  • To take into account industry’s concerns about competitiveness
  • To promote environmental measures (overall > 10 % of total revenues for environmental purposes):- local public transport- track transport- natural gas in the transport sector- low-/no sulphur containing fuels- efficient power plants
  • To ensure revenue neutrality:Reduction of employers’ and employees’ social security contribution by overall 1.7%-points
etr in germany results
ETR in Germany - Results
  • In 2000 transport fuel sales decreased by 2.8%, in 2001 by another 1.0%, in 2002 by additional 2.3% and in 2003 by –3.5%. All this happened for the first time in three subsequent years against an upward trend since 1950!
  • Demand for car pooling increased by 25% in the first half year of 2000, in 2001 +22%, in 2002 +8%, in 2003 +15%.
  • The number of passengers in the public transport system increased in 1999 for the first time (+0.4%), additional 0.8% in 2000, another 0.8% in 2001 and again +0.5% in 2002, in 2003 +1.5%– against a downward trend for decades before.
  • Macroeconomic Study:Job increase predicted of up to 250,000 until 2003, due to reduced labour costs, but also due to increased investment in energy savings.CO2-emissions and energy consumption will be reduced by 2-3% until 2003
environmental fiscal reform in the coalition agreement 2002 in general
Environmental Fiscal Reform in the coalition agreement 2002 – in general:
  • Green Budget Reform (GBR) and Environmental Fiscal Reform (EFR) are used synonymously.
  • EFR/GBR comprises:
  • 1. structural adaptations of existing taxes (e.g. ETR-reductions)
  • 2. reduction of environmentally damaging and macro-economically questionable subsidies, including tax expenditures
  • 3. increased spending for environmental purposes
environmental fiscal reform in the coalition agreement 2002 in detail
Environmental Fiscal Reform in the coalition agreement 2002 – in detail:
  • Support for building new houses will be reduced to the level of that for buying existing houses and concentrated on families. A supplement shall be further available for environmentally advanced measures.
  • The annual car tax will be based on CO2-emissions
  • On EU-scale D will push for a kerosene tax for aviation.
  • VAT-exemption for flights into EU-MS will be abolished.
  • Restructuring of the German hard coal mining sector will be continued. Subsidisation of the German hard coal sector will be ensured for the period 2006-2010. The contribution from the federal budget – which is at 3.05 billion € nowadays and which will be reduced to 2.17 billion € by 2005 – will be developed further in a degressive manner.
  • 2005: VAT-rate on public passenger transport for long-distances will be reduced from 16 per cent to 7 per cent.
  • More revenues will be spent on renovating buildings and promoting renewables.
  • Adjustment/Phasing out of some ETR reductions
etr adjustments in germany from 2003 on
ETR-adjustments in Germany from 2003 on:
  • Reduction of environmentally damaging tax reductions for
  • - industry (now a positive marginal tax rate)
  • - night storage heatings (phase out by 2007)
  • Adaptation of the gas tax to the level of the light heating oil based on CO2/energy content
  • Increased use of revenues for building stocks renovation and shift away from night storage heatings; prolonged tax reduction for natural gas used in the transport sector until 2020 for ensuring investment certainty.
general guidelines for fiscal reform decision by government 2003 and 2004
General Guidelines for Fiscal Reform: Decision by Government 2003 and 2004:
  • New subsidies should only be
  • - provided as expenditures, but no longer as tax expenditures.
  • - provided for a certain, fixed time period
  • Existing subsidies should be phased out.
  • They have to be justified every year during the budget consultations
  • However, no particular mention of environmentally damaging subsidies any more.
  • A bi-yearly subsidy report offers monitoring, though no explicit mention or evaluation of environmentally harmful subsidies
political process of reducing eds
Political process of reducing EDS
  • 1.+2. (structural adaptations of existing taxes and EDS) 2002/3: Tax expenditure reduction law (including ETR), but it was blocked by opposition in the Upper House
  • In a mediation Committee it was agreed – according to the Koch-/Steinbrück-Paper – to lower „all“ subsidies by the same percentage (4% p.a. in 3 years or 12% in one year).
  • But it did not comprise all subsidies, particularly critical ones like ETR-reductions, hard coal subsidies and road infrastructure expenditures were not included, while rail infrastructrue expenditures and programmes for renewables were included
  • For the year 2004 a review is foreseen in order to assess if and how energy taxation will be further developed according to environmental aspects, given the environmental impacts, the oil price, the macro-economic development, the competitiveness of German industry and the social impacts.
implementation progress of efr measures in the coalition agreement
Implementation progress of EFR-measures in the coalition agreement:

Measures agreed Extent of implementation

Support for building new existing houses: only slightly 

Annual car tax on CO2-emissions: no longer a priority 

EU-kerosene tax for aviation: at least option available o

Abolish VAT-exemption for flights into EU-MS blocked, waiting for EU 

Reducing German hard coal subsidies high level until 2012 

More revenues for buildings and renewables slight progress o

Adjustment/Phasing out of some ETR reductions implemented since 2003 

Reduction of VAT-rate on rail transport to be decided for 2005 o ?

4 x  3 x o 1 x 

Summary: mixed picture and several measures left for taking action

perspectives for etr
Perspectives for ETR

· Very difficult to implement further ETR-steps on transport fuels given the high level of taxation and nine neigbhouring countries.

· More likely to increase taxes on heating fuels and/or electricity since tankering hardly takes place.

· Implementation of the EU energy taxation directive (particularly: introduction of coal tax for heating purposes, abolishing the gas tax for electricity generation;possibly: tax supplement on sulphur-rich light heating fuel,introduction of a national kerosene tax)

· Increased taxation of industry, e.g. linked to energy audits or emission trading schemes, particularly for energy-intensive industries. UK’s climate change levy on business only and DK’s long experiences, but also signals for moves of Hungary offer room for manoeuvre.

· Increased use of additional revenues for the promotion of environmental measures

· Better embodiment of EFR in a policy package to overcome non-fiscal/-price barriers

contact
Contact:
  • kai.schlegelmilch@bmu.bund.de
  • Tel.: +49-1888-305-3664
  • Fax: +49-1888-305-2349
  • http://www.bmu.de
  • http://www.bmu.de/oekologische-finanzreform (information in D, E, FR, ESP)
  • THANK YOU VERY MUCH FOR YOUR ATTENTION!