Time to get rid of EU’s unanimity rule on green fiscal matters

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

Everyone benefits from a carbon tax at the EU's border because it not only fights pollution and acts as a lever for exporting good environmental practices, but it also appeases more protectionist-leaning parties.

Taxation is the last EU policy area where decision-making exclusively relies on unanimity. A gradual shift to qualified majority voting would help reach environmental objectives more effectively at a time when action on climate change is more urgent than ever, argue Eero Yrjö-Koskinen, Patrick ten Brink and Emma Watkins.

Eero Yrjö-Koskinen is executive director of Green Budget Europe, an environmental pressure group. Patrick ten Brink is EU policy director at the European Environmental Bureau (EEB). Emma Watkins is senior policy analyst at the Institute for European Environmental Policy (IEEP).

On 15 January 2019, the European Commission published a Communication proposing a gradual shift from unanimity to qualified majority voting (QMV) in the field of taxation. So far, this initiative has been widely overlooked, despite its potential significant impacts on EU decision-making.

As stated in the Communication, taxation is the last EU policy area where decision-making exclusively relies on unanimity. During the past 30 years, decision-making procedures in other areas have evolved in response to economic, environmental, social and technological changes, and clear results have been achieved. QMV is now the standard rule, including for policies that are just as politically sensitive as taxation.

The Commission argues that in today’s modern and integrated EU, a purely national approach to taxation no longer works and unanimity is neither a practical nor an effective way of decision-making. National and common interests are intertwined. Globalisation and digitalisation have created common challenges that need common solutions.

In order to tackle these problems, the Commission suggests the introduction of QMV in specific fields of taxation, where the so-called passerelle clause as referred to in Article 48(7) of the Treaty on European Union (TEU) could be activated.

Article 192(2) of the Treaty on the Functioning of the European Union (TFEU) contains a similar clause for measures in the environmental field currently subject to unanimous voting, including provisions “primarily of a fiscal nature”.

This possibility is relevant both for the fight against climate change and for the achievement of broader EU environmental policy goals.

Data from Eurostat suggests that on average, EU countries gather only around 6% of their total tax revenues from environmental taxes. The vast majority of that is from energy- and transport-related taxes, with minimal revenue from taxes on pollution or resource use (less than 0.1%).

EU wants end to member state veto on tax

The European Commission on Tuesday (15 January) proposed to end the veto power member states have over EU tax matters, an idea rejected by several smaller countries including low-tax hub Ireland.

We are convinced that decarbonising our societies, promoting energy and resource efficiency, improving the sustainability of land use and forestry, and developing more sustainable farming and transport practices, will benefit from a common approach at European level.

A move towards greater use of environmental taxation – whether at the EU or national level – and less distortion and fragmentation between member states in their tax regimes, would assist with this. It should also be highlighted that a shift towards environmental taxation can be designed to be revenue neutral overall, whilst also enabling a reduction in the tax burden on labour, with the potential added benefit of reducing employment costs.

Such steps at the EU level, however, will not be possible without greater flexibility in decision-making to facilitate the introduction of the necessary fiscal instruments and market-based mechanisms to promote our common environmental objectives, whilst of course taking into consideration the social equity concerns related to such measures.

In this regard, it will be interesting to see what emerges from the Communication “Towards a new institutional framework for our energy and climate policy by 2025: options for enhanced qualified majority voting and for a possible reform of the Euratom Treaty”, due to be discussed by the Commission at the end of March.

We welcome the launch of this debate and invite EU institutions, and governments and stakeholders in the member states, to back the Commission’s initiative in particular with regards to environment-related taxation.

Supporting the decisions needed at EU level will also offer additional opportunities to meet our international pledges, including those related to the Paris Agreement and implementation of the UN Sustainable Development Goals.

Member states shield national vetoes on tax matters

A large majority of EU governments opposed on Tuesday (12 February) the European Commission’s proposal to end the unanimity required to pass legislation on taxation, saying they want to protect national sovereignty and avoid having decisions forced on reluctant countries.

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