One of the biggest gambles of the 750 billion-euro coronavirus recovery package agreed by the EU is the idea that Brussels will be able to raise new taxes and levies across Europe in order to pay for it.
The European Union budget has historically been paid for by direct contributions by member states, with some revenue coming from customs duties and other sources.
But in a landmark shift, the recovery package will be paid for by a massive loan and the EU governments would like to avoid having to fork out more cash to repay it down the road.
Repayment of the debt is due to start from 2026. Brussels is optimistically hoping that agreement can be found on a few new taxes.
Funding the EU recovery package through taxes
The EU has been plunged into a historic economic crunch by the coronavirus crisis, and EU officials have drawn up plans for a huge 750-billion-euro stimulus package to lead their countries out of lockdown.
Merkel and Macron are backing a recovery package made up of a mixture of loans and grants to member states to revive economies shattered by the virus and preventive lockdowns.
Read more: Coronavirus: EU is facing the biggest crisis since its founding, Merkel
France’s President Emmanuel Macron and Germany’s Chancellor Angela Merkel have joined summit host and European Council president Charles Michel in trying to drag the frugals and the more indebted — and virus-ravaged — on board for a compromise, but talks have stumbled.
Now new taxes are being proposed in order to fund the enormous recovery package in order to aid the countries in paying out the loan for the rescue package.
Plastic tax for the environment
The tax on non-recycled plastics is probably the least controversial idea around. The EU already expects one to be in place by January 1, 2021.
”They are still denying the fact and ignoring the fact that we are facing a climate emergency, and the climate crisis has still not once been treated as a crisis”#FaceTheClimateEmergency https://t.co/4oQ53IorFT
— Greta Thunberg (@GretaThunberg) July 21, 2020
The new tax will be paid by member states at rate of 0.80 euros per kilo, with a mechanism to avoid excessive contributions.
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The European Commission expects revenues to remain relatively stable over the period 2021-2027, between four and eight billion euros per year.
However, these revenues are set to decline as recycling increases in the EU.
Carbon tax for the atmosphere
Several member states, led by France, have long wanted a carbon “tax” (or “border carbon adjustment mechanism”) to avoid price differentials on products manufactured in regions where environmental legislation is more permissive.
European leaders agree to start a border carbon tax in 2023 😮https://t.co/cqEpZJawKB
— Joseph Majkut (@JosephMajkut) July 21, 2020
The commission is due to present a proposal in the first half of 2021 on the adjustment mechanism for adoption no later than January 1, 2023 — well before the first recovery debt payment is owed.
But it will be difficult to make the proposal comply with international trade rules, and internal opposition among the EU-27 will surely delay matters.
The EU is also set to review the European carbon market or Emissions Trading Scheme, which has existed for years but failed to achieve its goals. It makes polluting companies fork over for spouting carbon emissions into the atmosphere.
A new reform is expected, which envisages extending it to the aviation and maritime sectors. But no timetable is specified.
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Germany has been very receptive to the idea, but mainly for its own financing needs and not necessarily the EU’s.
According to Commission estimates, the carbon tax could bring in between five and 14 billion euros per year and the extension of the carbon market coverage around 10 billion per year.
Digital tax for businesses
A proposal on a “digital levy” is to be put forward in the first half of 2021, with a view to implementation in 2023.
The Commission estimates that a digital tax on businesses with an overall annual turnover of more than 750 million euros could bring in up to 1.3 billion euros per year.
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But the chances of success are virtually nil without a total change in philosophy by Ireland and other small EU nations that serve as the European headquarters for big tech.
A tobin tax?
Sometimes called a Tobin tax, a levy on financial transactions has never made it to reality despite a proposal backed by France and Germany on the table for nearly a decade.
The European Commission, the EU’s powerful executive arm, proposed it in the wake of public anger in 2011 against bank traders who were blamed for the financial crisis that had sparked a global recession.
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Clinching it could prove financially very lucrative. According to French MEP Pierre Larrouturou, it could bring in between 57 and 60 billion euros a year.
AFP with additional input by GVS News Desk