Carbon levy, plastic tax hailed as potential game-changers for EU budget

The proposed carbon levy and tax on non-recycled plastic waste "would be the single biggest change in the EU’s own-resources ever,” a senior EU official has said. [quantum bunny / Flickr]

Proposals to allocate 20% of revenues from carbon trading to the EU budget, combined with a new tax on plastic waste, could help plug the hole left by Britain’s departure from the European Union, as leaders meet tomorrow to agree on the bloc’s first post-Brexit budget.

The carbon levy and plastic tax proposal “is a very significant step forward” for the bloc’s finances, said a senior EU official who briefed journalists on Tuesday (18 February) ahead of a special summit dedicated to the EU’s long-term budget.

“If adopted by the European Council, it would be the single biggest change in the EU’s own-resources ever,” the senior EU official added, referring to the meeting of heads of states and government beginning on Thursday.

The budget for 2021-2027 will be the first to be adopted after the United Kingdom left the bloc, a move that will leave a €75 billion hole in EU finances over the next seven years.

Charles Michel, the president of the European Council who chairs EU summits, tabled a new compromise proposal last week, hoping to bridge divisions between rich countries like Germany and the Netherlands, who want to cap their national contributions to the EU budget, and net recipients like Poland, Romania, and Hungary, who want to preserve funding for poorer regions.

“Relatively poorer member states like Hungary and Poland would be gaining” from Michel’s budget proposal, the senior official explained, saying the shift would represent about 5.4 billion extra funding for poorer EU regions compared with the previous proposal.

Carbon ley and plastic tax

Michel’s compromise on the EU budget also includes further details on the carbon levy and EU-wide plastic tax, tabled in 2018 as part of the Commission’s initial budget proposal.

To plug the Brexit hole and decrease the bloc’s reliance on national contributions, the Commission proposed allocating 20% of revenue from carbon trading – the Emissions Trading Scheme (ETS) – directly to the EU budget.

The Commission also proposed introducing an EU-wide tax on non-recycled plastic waste, which EU officials currently see as “the most promising” way of bringing additional sources of revenue to the bloc’s budget.

‘Broad support’ for EU-wide plastic tax

A European tax on plastic waste is gaining momentum as a way to bring new sources of revenue to the EU budget as leaders prepare for a two-day summit in Brussels beginning on Thursday (17 October).

According to the Commission proposal, national contributions to the plastic tax would be calculated “with a call rate of €0.80 per kilogram” of non-recycled plastic waste going into landfill.

But that created jitters among poorer Eastern EU countries, which have lower recycling rates than wealthier Western member states and would end up contributing more.

A cap to avoid “regressive impact” on national contributions

To restore the balance, Michel’s compromise now includes “a mechanism to avoid excessively regressive impact on national contributions”. This would limit payouts from poorer EU countries, and prevent them from taking a disproportionate hit, the senior EU official explained.

“Poorer member states would have to contribute a little bit less” than they would have otherwise done if no mechanism was applied, the official explained, saying “this should mitigate the distributional impact” of the tax and protect poorer member states.

The official admitted however that it was still unclear how exactly the new mechanism would work in practice. “You could think of a floor in the payments” or “a fixed deduction,” the senior official explained, saying this would be fairer on poorer EU countries.

Concerns were also raised regarding the declining revenues coming from the tax: as more plastic is recycled, over time, the related revenues would gradually diminish, critics pointed out.

However, the senior EU official did not seem too concerned. “This revenue will dwindle” over time as recycled plastics become the norm, he admitted. “But if you look at the example of taxes on cigarettes,” revenues were stabilised over time, despite a decrease in the consumption of cigarettes, the official remarked.

Michel offers flexible EU budget to convince sceptics

More flexibility within the Common Agriculture Policy and more money to less developed regions instead of a larger budget is what European Council President Charles Michel will offer to sceptic countries to agree on a new EU 7-year blueprint next week. 

[Edited by Zoran Radosavljevic]

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