Environmental taxes advocated by Green parties such as road pricing give rise to social resistance and populist criticism. There is, however, a response to the mistrust of green taxation. Richard Wouters explores the potential of the environmental dividend to drum up support for much needed but controversial green taxes.
This article is also available in audio as part of the Green Wave podcast.
During the 2017 election campaign in the Netherlands, GroenLinks, the Dutch Green party, came under attack from other parties because of the numerous environmental taxes in their programme. The leader of the social-liberal Democrats 66 (D66) party, Alexander Pechtold, did not shy away from populist exaggeration: “You abolish the deductible in healthcare, but let people pay it in another way by introducing seven new taxes”, he accused GroenLinks leader Jesse Klaver in a television debate. Klaver was also reproached by Christian Democratic Appeal (CDA) leader Sybrand van Haersma Buma during the closing debate: “Those taxes on packaging, on cars, on houses, they will really hurt people.”
Following the failure of coalition formation attempts with the conservative-liberal VVD party as well as with the CDA and D66 parties, Klaver let it slip that GroenLinks would have sacrificed one of its environmental taxes – road pricing – for a good agreement. Klaver’s revelation about the formation negotiations may not have been coincidental: few friends are made through imposing mileage charges for passenger cars, and most certainly not among the police officers, bus drivers, and healthcare workers that GroenLinks has been trying to recruit since their 2017 election victory in order to grow into a broad people’s party. For many, driving a car is an ingrained habit; for others, it is a necessity. And even without road pricing, there is a widespread belief in the populist myth of the car as a cash cow for the government.
The advantage of environmental taxes over rules and bans is that they leave far more room for individual free choice.
At the same time, the example of road pricing shows that effective environmental policy without painful tax measures is not so simple. Thanks in particular to smartly designed kilometre and congestion charges, GroenLinks’ plans on mobility scored best in the Dutch Environmental Assessment Agency’s comparison of the election programmes: 20 per cent fewer CO2 emissions from traffic in 2030 (in addition to the already anticipated decrease due to stricter European standards), 14 per cent fewer particulate matter emissions, and 10 per cent fewer nitrogen oxide emissions. On top of that, 60 per cent fewer traffic jams, 8 per cent more walking and cycling kilometres, and fewer traffic casualties.
How would a package of measures without road pricing look if it were to be equally effective against climate change, unhealthy air, and the congestion of cities by a growing number of cars? Such a package would still include fiscal measures: a substantial increase in existing taxes on the purchase, possession, and fuelling of petrol and diesel cars. Moreover, access to cities would be rationed for motorists. The freedom of the car driver would thus be considerably more restricted than would be the case with smart road pricing. The advantage of environmental taxes over rules and bans is that they leave far more room for individual free choice. Green politics without new taxes could certainly be very patronising.
Proceeds for citizens
Is it possible to gain the support of police officers, bus drivers, and healthcare workers for new environmental taxes? Can the populist criticism that GroenLinks bankrupts the ordinary man be countered? Perhaps it would help to better address the mistrust of fiscal greening. Although myths like that of the car as cash cow are not easily abolished, they can always be responded to.
In a report on carbon pricing, the World Bank suggests that if a green tax raises misgivings, the proceeds should be returned directly to the citizens. According to the report: “Jurisdictions that adopt this approach establish a certain credibility with respect to the motivation for the tax. It is clear that the government is not trying to extract additional revenue from taxpayers to expand its own budget or power.”
Switzerland and a number of Canadian provinces (among others) have opted to return the revenues from carbon taxes to citizens and businesses in the form of lower social insurance premiums and taxes. Last year, a group of prominent Republicans in the United States – motivated by the dangers of climate change – launched a plan for carbon taxation that promised even more transparency about the returns: 100 per cent of the proceeds would be distributed to US residents each month as a ‘dividend’. The plan does not stand a chance as long as the Trump administration is dominated by climate change deniers. But according to these ‘green’ Republicans, once introduced the dividend would become so popular among Americans that nobody would ever dare to reverse the carbon tax.
The plan pays out an equal share of the revenue from the carbon tax to every American, from babies to old-timers. Such a division per capita, according to the World Bank, “can be essential in building political support”. With this distribution it is very likely that the environmental dividend received by the average family would be higher than the amount it pays in environmental taxes. They would get a less messed up climate, cleaner air, and richer nature as free extras.
The Netherlands is not America. Unlike the Republicans, the constituents of GroenLinks are not calling for a small government. GroenLinks cannot leave out the proceeds of the environmental taxes, which finance three quarters of their proposals for fairer policies, in the financial substantiation of their programme. These proposals include not only abolishing healthcare deductibles, but also lowering health insurance premiums, improving education, reducing burdens for labour, and reversing budget cuts for development cooperation. In the coming decades, the revenues from environmental taxes will also be necessary for the fair distribution of the benefits and burdens of the transition to clean energy.
if our government taxes what subtracts value (pollution) instead of what adds value (labour) to society and to the earth, the result is a better society on a healthier planet.
Yet it makes sense to opt for an environmental dividend if a green tax is highly controversial. Examples are road pricing, taxation of airline tickets, levies on built-up space and increasing VAT on meat and fish (all measures that are part of the financial underpinning of the GroenLinks programme). The proceeds of the tax are then channelled as directly as possible back to citizens and other residents, for example as a tangible discount on income taxes or as a payment from the tax authorities to people who pay little or no income tax.
From a social perspective, such an environmental dividend does not have to be squandered money: if everyone receives an equal amount, the ‘Klaver dividend’, as we might call it, contributes to greater income equality. From a green perspective, it is compelling that an environmental tax linked to a dividend is more difficult for political opponents to reverse. Who remembers the Dutch flight tax introduced in 2008? The aviation industry succeeded in lobbying that away within a year. A kilometre charge simply for passenger cars can generate a dividend of around 170 euros per person per year, even after deducting the implementation costs from the proceeds. That is serious money, especially for the average family with children. They will not easily allow that to be taken away from them.
No bowing down to populism
Is it going too far to respond to the populist criticism of GroenLinks’ environmental taxes with an environmental dividend that may also be a bit populist? In that case, GroenLinks must tell the narrative of the green tax shift even more frequently: if our government taxes what subtracts value (pollution) instead of what adds value (labour) to society and to the earth, the result is a better society for ourselves and for our children on a healthier planet. It is also important to continue looking for (European) instruments that do not only tax pollution in the consumption phase, but already at the source: mining, industry, and agriculture. In this way companies, not citizens, will more often be presented with the bill. What GroenLinks and other Green parties should not do in any case is compromise on the need for the greening of taxes. That would truly be bowing down to populism.
This article first appeared in De Helling quarterly in Dutch.