European experts discussed the role of taxation in reconciling the green transition and competitiveness at a meeting of the European Parliament's Subcommittee on Tax Matters (FISC) on Thursday 24 April. While taxation is an instrument that can facilitate the alignment of these two elements, it will not be enough on its own to achieve this.
For Angela Köppl, an economist at the Austrian Institute of Economic Research (WIFO), competitiveness and the ecological transition require a deep structural change that cannot be achieved by focusing on a single instrument and implies huge investment needs. “Thus, a policy mix that integrates a broad range of instruments like pricing instruments, subsidies, standards and public infrastructure investment will be needed, not to forget the greening of finance”, she emphasised. Several studies suggest – and empirical evidence shows – that a strategic combination of instruments may bring about considerable synergies. This is why we need to better understand the effectiveness of different policy instruments as well as the interaction between them.
She mentioned several policy axes for the EU, such as the reform and phasing out of harmful subsidies, together with green taxes. She also recommended tackling the innovation gap, in particular by putting in place adequate measures to recycle carbon tax revenues, while taking competitiveness into account.
“The most effective tax systems are those that integrate both imperatives: providing credible signals to reduce emissions while also enabling firms to invest, innovate, and compete”, said Kurt Van Dender, Head of the Tax Policy and Statistics Division, Centre for Tax Policy and Administration, OECD. “Tax certainty and alignment with long-term goals is key to a favourable investment climate”, he added.
“Clarity, consistency, and predictability are what will empower Europe’s business community to lead the green transition”, added Lúcio Vinhas de Souza, Chief Economist and Director of the Economics Department at the European employers’ association BusinessEurope. Concerned about the “disproportionate impact” of certain tax policies on European businesses, he called on the EU to re-evaluate the consequences of the OECD Pillar 2 reform rules on minimum taxation of businesses (see EUROPE 13622/26). (Original version in French by Anne Damiani)