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Environmental Fiscal Reform

“Implementing the Environmental Fiscal Reform – Greening the State Budget in the Visegrad countries and Europe”.

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Environmental Fiscal Reform

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  1. “Implementing the Environmental Fiscal Reform – Greening the State Budget in the Visegrad countries and Europe”. The workshop is organized by the Society for Sustainable Living, Prague (SSL), the Clean Air Action Group, Hungary (CAAG), the Institute for Sustainable Development, Warsaw (ISD), and the Danish Ecological Council (DEC). November 20, 2003Prague, Czech Republic Environmental Fiscal Reform in Poland as a Tool of Greening the State Budget 2003 - 2004

  2. Environmental Fiscal Reform • The Environmental Fiscal Reform consists in shifting tax burdens from labour resources to the natural resources used. • Its aim is to gain the environmental effect, along with the social effect, which is to encourage entrepreneurs to expand their economic activities and thereby to increase the employment in their companies.

  3. Environmental Fiscal Reform • may play a stabilising role for the medium- and long-term objectives of economic growth and employment and contribute to the preservation of a good state of the environment • may be an effective instrument for restructuring the public finance system in line with the criteria for achieving the goals of sustainable development

  4. The Environmental Fiscal Reform: Some interest and no implementation The Environmental Fiscal Reform has notyet been applied in practice in Poland. Still, research centres and, recently, non-governmental organisations became interested in it.

  5. Economic recession • · a fall in its economic growth rate • ·a fall in the investment activity of enterprises • ·a decrease in the flux of foreign direct investment • ·a slower rate of the restructuring and privatisation • ·a halt to the establishment of new enterprises in the private sector particularly in the SME sector

  6. Growing unemployment • ·the unemployment rate grew 18.1% at the end of 2002 • ·the scale and extent of poverty expanded with about 8.1% of the population • ·the geographical and sectoral differentiation in household incomes grew, e.g. in relation to the availability of work

  7. Worsening of the state of the environment • ·a lower share of environmental expenditures in GDP • ·a reduced number of municipal environmental infrastructure facilities ·enhanced geographical divergence in the local provision of environmental infrastructure and its use by the population

  8. ·a reduced rate of the improvement in the main indicators for the state of the environment and the consumption of its resources • ·the maintenance of a relatively high share of fossil fuels in the national energy balance

  9. Growing indebtness of the public finance An increase in the debt of the public finance system was one of the effects of the recession in 2000-2002. The process of growing indebtedness of Government and local government institutions as commenced in 2000-2002 persists and will continue in 2004. This means that the unfavourable conditions for the budget financing of development and environmental objectives will continue

  10. The concept of the EFR should take into account the following • ·the current economic, employment and environmental situation in place • ·the strategic goals and priorities of the national macroeconomic policy in relation to the accession to EMU; • ·the goals and priorities of the national environmental policy

  11. ·the need to restructure the public finance sector in relation to development and employment generating policies • ·the specific conditions in the particular sectors of industry ·the public consent and the political consent of the major political parties

  12. Gaining the political consent to the implementation of EFRrequires fulfilling a number of criteria • ·the criterion of maintaining the competitiveness of Polish enterprises on the international markets • ·the criterion of neutrality for the budget revenues • ·the criterion of equitable distribution of fiscal burdens the need to meet the • ·accession-related financial and environmental commitments

  13. The excise tax and EFR in Poland The significance of the excise tax in the State budget revenues is essential for the possibility of implementing ERF in Poland

  14. Incomes from excise tax on motor fuels in 2002, of which: Leaded petrol Unleaded petrol Diesel oil Liquid gas 13 821,9 29,1 8 103,2 5 413,8 275,8 100% 0,2% 58,6% 39,2% 2,0% Estimated incomes form taxes on major excisable motor fuel groups

  15. Incomes from excise taxes on major excisable commodity groups

  16. Excise tax rates on energy carriers valid in Poland in 2002

  17. Excisable tax commodity groups Minimum excise tax rates in the EU (EURO) Excise tax rates in Poland (EURO*) Spirits 550,0 EURO / hl of 100% alcohol 1075,4 EURO/hl of 100% alcohol Leaded petrol 337,0 EURO / 1000 l. 408,65 EURO / 1000 l. Unleaded petrol 287,0 EURO / 1000 l. 366,12 EURO / 1000 l. Diesel oil 245,0 EURO / 1000 l. 256,8 EURO / 1000 l. LPG 100,0 EURO / 1000 kg 109,98 EURO / 1000 kg Excise tax rates in Poland and the minimum excise tax rates in the European Union

  18. The concept of the Environmental Fiscal Reform (the Cracow University of Economics, Cracow, February 2003) The core items of the budget adjustment proposed over four years of the ETR include: • ·the gradual introduction of taxes on energy carriers • · the reduction of contributions to social security insurance ·operations neutral for the budget revenues

  19. Fuels 1 year of ETR 2 year of ETR 3 year of ETR 4 year of ETR and electric energy Incease in rate New rate Increase in rate New rate Increase in rate New rate Increase in rate New rate Hard coal 0,0 0,0 0,0 0,0 0,005 0,005 0,002 0,007 Electric energy 0,0 0,0 0,007 0,007 0,0 0,007 0,003 0,010 Petrol 0,065 0,065 0,0 0,065 0,010 0,075 0,0 0,075 Diesel oil 0,055 0,055 0,0 0,055 0,010 0,065 0,0 0,065 Heating oil 0,030 0,030 0,0 0,030 0,0 0,030 0,0 0,030 Basic scenarioExcise taxes on hard coal, electrical energy and motor fuels imposed on corporate sector and households

  20. Fuels 1 year of ETR 2 year of ETR 3 year of ETR 4 year of ETR and electric energy Increase in rate New rate Increase in rate New rate Increase in rate New rate Increase in rate New rate Hard coal 0,0 0,0 0,015 0,015 0,005 0,020 0,0 0,020 Electric energy. 0,0 0,0 0,020 0,020 0,010 0,030 0,0 0,030 Petrol 0,065 0,065 0,020 0,085 0,050 0,135 0,050 0,185 Diesel oil 0,055 0,055 0,020 0,075 0,050 0,125 0,050 0,175 Heating oil 0,030 0,030 0,0 0,030 0,0 0,030 0,050 0,080 Alternative scenarioExcise taxes on hard coal and electrical energy imposed only on households

  21. Specifica-tion Basic scenario Alternative scenario Additional tax incomes Deficits in incomes of social contribution Additional tax incomes Deficits in incomes of social contribution 1 year of ETR 780,7 792,4 780,7 792,4 2 year of ETR 1 653,5 1 584,8 1 567,7 1 584,8 3 year of ETR 2 488,0 2 377,3 2 355,2 2 377,3 4 year of ETR 3 144,2 3 169,7 3 140,9 3 169,7 Additional incomes of the State budget and deficits in incomes from social security contribution funds (basic year 2001)

  22. Specification Basic scenario Alternative scenario Energy and motor fuels Price in PLN/kg (kWh) Excise tax rate PLN/ kg (kWh) Share of excise tax in price in % Excise tax rate PLN / kg (kWh) Share of excise tax in price in % Hard coal 0,45 0,007 1,6 0,020 4,4 Electric energy. 0,37 0,010 2,7 0,030 8,1 Petrol 3,10 0,075 2,4 0,185 6,0 Diesel oil 2,60 0,065 2,5 0,175 6,7 Heating oil 1,60 0,030 1,9 0,080 5,0 Comparison of retail prices of energy and motor fuels in 2001 (basic year) with prices under the basic and alternative ETR scenarios

  23. The concept of the Environmental Tax Reform (Institute for Sustainable Development, Warsaw, October 2003) • ·The financial effects of ETR were given under the conditions of 2003. • ·The average employment in the national economy in 2003 as 8,643,000 persons. ·The average salary in the national economy in 2003 as PLN 2,021 (gross).

  24. Reduction in payments to social security funds (together) - 2,3 Increase in incomes from Personal Income Tax + 0,2 Together - 2,1 Financial effects of reductions in social contribution rates

  25. Financial effect Scenario I Additional incomes from pension insurance contributions 0,1 0,2 Scenario II Disability insurance 0,05 0,1 Health insurance, accident insurance, Labour and Guaranteed Social Benefits Fund 0,03 0,06 Additional incomes from PIT (together with contributions to National Health Fund)* 0,06 0,12 Additional incomes from Corporate Income Tax 0,1 0 Additional incomes total 0,25 0,5 Total financial effect on the public finance sector (after addressing shortages resulting from decreases in social insurance contribution rates) - 1,8 -1,6 Financial effects of the additional employment on the sector of public finance

  26. Specification Scenario I Scenario II Alternative I Motor fuels 12,7% 11% or Electric energy 75,4% 65% Alternative II Motor fuels 4,3% 2,6% Electric energy 1 grosz (0,01 PLN) / kWh 1 grosz (0,01 PLN) / kWh Mean annual increases in excise tax rates

  27. Recommendations for the adjustment of the State budget in Poland in 2003 and 2004 • ·The State budget could be “greened” to a meaningful extent only by the implementation of the Environmental Fiscal Reform • ·The financial base for the Environmental Fiscal Reform should be taxes levied on selected fuels and energy carriers ·The most favourable EFR option is widening of tax burdens on greater range of taxpayers, including both the sector of enterprises, the budget-supported sphere and households

  28. ·The timeframe of EFR should be subject to negotiations between the Government and social partners • ·The Environmental Fiscal Reform should be strictly co-ordinated with the comprehensive reform of public finance, the assumptions of which still continue to be discussed in Poland. • ·Suggestions for greening the State budget for 2005 and 2006 may base on the estimates made for 2003 and 2004 • ·In designing the structure of EFR as an instrument to green the State budget in the successive years, each time consideration should be given to the course of the reforms of social insurance systems and mechanisms now debated in Poland and the other European Union countries

  29. Specification 2000 2001 2002 Environmental protection total (PLN millions), of which: 6 570,3 6 168,9 5 027,1 Own financial means 53,4 51,8 46,7 Means: of the State budget 2,2 2,0 1,8 voivodships 1,6 1,0 1,7 poviats 0,2 0,3 0,4 gminas 1,4 0,8 0,9 Foreign financial means 3,9 3,2 4,2 Environmental funds (loans, credits, grants) 20,0 23,7 26,1 Loans and credits inland, of which from banks 11,7 12,1 12,3 Other financial means 5,6 5,1 6,0 Investment outlays on environmental protection and water management according to financial sources

  30. Specification 2000 2001 2002 Environmental protection total (PLN millions), of which: 6 570,3 6 168,9 5 027,1 Enterprises 52,3 51,5 49,3 Gminas 44,4 46,6 47,8 Budgetary entities 3,3 1,9 3,0 Water management total (PLN millions), of which: 1 652,7 1 315,1 1 440,1 Enterprises 23,7 25,1 27,0 Gminas 39,4 41,2 38,0 Budgetary entities 36,8 33,7 35,0 Investment outlays on environmental protection and water management according to the shares of investors

  31. Specification Unit 2000 2001 2002 Environmental protection Waste water treatment plants (facilities), of which: X 324 262 197 ·biological X 135 129 119 ·with enhanced nutrient removal X 40 25 29 capacities of treatment plants total dam3/24h 1098 642 396 ·biological dam3/24h 405 173 164 ·with enhanced nutrient removal dam3/24h 364 312 202 Ability of commissioned system to ·reduce particulate pollutants thous. ton/a. 170.3 66,5 17,1 ·reduce gaseous pollutants thous. ton/a. 176,3 64,3 9,0 Some tangible effects of investments in environmental protection and water management in the year 2000-2003

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