Kai Schlegelmilch*
Federal Ministry for the Environment, Nature
Conservation and Nuclear Safety, Berlin/Germany
Green Budget Reform
in Germany – Results
and Perspectives
2nd-3rd September 2004, Budapest, Hungary
International 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
• 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 marketeconomy
• 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 expenditures
But a limited scope: E.g. commuters tax reduction
of 3 bn. € is not included
National Climate Protection Programme 2000
• Ecological Tax Reform
Internalising external costs = reducing subsidies to the
market-economy
• National Allocation Plan
Overallocation could be considered as subsidy, however none
takes place in Germany. In fact, real reductions have to be
achieved.
• Promotion of rail transport
Providing 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
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
• 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
• 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:
•
Green Budget Reform (GBR) and Environmental
Fiscal Reform (EFR) are used synonymously.
•
EFR/GBR comprises:
•
1. structural adaptations of existing taxes (e.g. ETRreductions)
•
2. reduction of environmentally damaging and macroeconomically questionable subsidies, including tax
expenditures
•
3. increased spending for environmental purposes
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:
• 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:
• 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
•
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 EFRmeasures 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
4x
3xo
to be decided for 2005
1x
Summary: mixed picture and several measures left for taking action
o?
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:
• 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!