“Implementing the Environmental Fiscal Reform – Greening the State Budget in the

Visegrad countries and Europe”.

The workshop is organized by the Society for Sustainable Living, Prague (SSL), the Clean Air Action Group, Hungary

(CAAG), the Institute for Sustainable Development, Warsaw (ISD), and the Danish Ecological Council (DEC).

November 20, 2003 Prague, Czech Republic

Environmental Fiscal Reform

in Poland as a Tool of Greening the State Budget 2003 - 2004

Environmental Fiscal Reform

• The Environmental Fiscal Reform consists in shifting tax burdens from labour resources to the natural resources used.

• Its aim is to gain the environmental effect, along with the social effect, which is to encourage entrepreneurs to expand their economic activities and thereby to increase the employment in their companies.

Environmental Fiscal Reform

• may play a stabilising role for the medium- and long-term objectives of economic growth and employment and contribute to the preservation of a good state of the environment

• may be an effective instrument for restructuring the public finance system in line with the criteria for achieving the goals of sustainable development

The Environmental Fiscal Reform:

Some interest and no implementation

The Environmental Fiscal Reform has not yet been applied in practice in Poland. Still, research centres and,

recently, non-governmental organisations became interested in it.

Economic recession

• ·  a fall in its economic growth rate • · a fall in the investment activity of

enterprises • · a decrease in the flux of foreign direct

investment • · a slower rate of the restructuring and

privatisation • · a halt to the establishment of new

enterprises in the private sector particularly in the SME sector

Growing unemployment

   the unemployment rate grew 18.1% at the end of 2002

  the scale and extent of poverty expanded with about 8.1% of the population

  the geographical and sectoral differentiation in household incomes grew,

e.g. in relation to the availability of work

Worsening of the state of the environment

a lower share of environmental expenditures in GDP

  a reduced number of municipal environmental infrastructure facilities

  enhanced geographical divergence in the local provision of environmental infrastructure and its use by the

population

  a reduced rate of the improvement in the main indicators for the state of the environment and the consumption of its resources

   the maintenance of a relatively high share of fossil fuels in the national

energy balance

Growing indebtness of the public finance

An increase in the debt of the public finance system was one of the effects of the recession in 2000-2002. The process of growing indebtedness of Government and local government institutions as commenced in 2000-2002 persists and will continue in 2004. This means that the unfavourable conditions for the budget financing of development and environmental objectives will continue

The concept of the EFR should take into account the following

the current economic, employment and environmental situation in

place the strategic goals and priorities of

the national macroeconomic policy in relation to the accession to EMU;

the goals and priorities of the national environmental policy

the need to restructure the public finance sector in relation to

development and employment generating policies

the specific conditions in the particular sectors of industry the public consent and the political

consent of the major political parties

Gaining the political consent to the implementation of EFR requires fulfilling a

number of criteria

the criterion of maintaining the competitiveness of Polish enterprises on the

international markets the criterion of neutrality for the budget

revenues the criterion of equitable distribution of

fiscal burdens the need to meet the accession-related financial and

environmental commitments

The excise tax and EFR in Poland

The significance of the excise tax in the State budget revenues is essential for the possibility of implementing ERF in Poland

Estimated incomes form taxes on major excisable motor fuel groups

Incomes from

excise tax on motor fuels in

2002, of which:

Leaded petrol

Unleaded petrol

Diesel oil Liquid gas

13 821,9 29,1 8 103,2 5 413,8 275,8

100% 0,2% 58,6% 39,2% 2,0%

Incomes from excise taxes on major excisable commodity groups

Specification 2002 performed 2003 planned* 2004 forecast**

Excise tax 31 489,8 34 413,0 34 614,7

of which

   

- motor fuels 13 821,9 14 766,1 15 426,1

- spirits 3 876,0 3 429,7 4 018,2

- tobacco products 7 927,2 8 283,6 8 780,0

- beer 2 104,5 2 181,0 2 309,1

- wine 635,6 649,2 758,9

- cars 670,8 764,8 571,1

- electric energy 1 557,4 2 543,8 2628,5

- other excise taxed products

896,4 829,9 487,7

Specification Unit Excise tax rate

Petrol motor fuels and basic petrols, of which: 1000 l 1 634

(Ethyl) gasoline 94, 98 and their basic petrol 1000 l 1 629

Unleaded petrol 1000 l 1 464

Aircraft fuels 1000 l 1 704

Motor oil, of which those with sulphur content: 1000 l 1 104

more than 0,05% up to 0,2% 1000 l 1 090

more than 0,005% up to 0,05% 1000 l 1 027

up to 0,005% 1000 l 980

Aircraft fuels for jet turbine engines 1000 l 1 003

Motor oils*   20%

Heating oils (60% or more undergoes distillation by volume at 350 degrees Centigrade)

1000 l imported 25%

Kerosene 1000 l 160

LPG for cars 1000 kg 1 704

Electric energy kWh 390

Excise tax rates on energy carriers valid in Poland in 2002

 

Excisable tax commodity

groups

Minimum excise tax rates in the EU (EURO)

Excise tax rates in Poland (EURO*)

Spirits 550,0 EURO / hl of 100% alcohol

1075,4 EURO/hl of 100% alcohol

Leaded petrol 337,0 EURO / 1000 l. 408,65 EURO / 1000 l.

Unleaded petrol 287,0 EURO / 1000 l. 366,12 EURO / 1000 l.

Diesel oil 245,0 EURO / 1000 l. 256,8 EURO / 1000 l.

LPG 100,0 EURO / 1000 kg 109,98 EURO / 1000 kg

 

Excise tax rates in Poland and the minimum excise tax rates in the European Union

The concept of the Environmental Fiscal Reform (the Cracow University of Economics, Cracow,

February 2003)

The core items of the budget adjustment proposed over four years of the ETR include:

the gradual introduction of taxes on energy carriers the reduction of contributions to social security insurance

operations neutral for the budget revenues

Basic scenarioExcise taxes on hard coal, electrical energy and motor

fuels imposed on corporate sector and households

Fuels 1 year of ETR 2 year of ETR 3 year of ETR 4 year of ETR

and electric energy

Incease in rate

New rate

Increase in rate

New rate

Increase in rate

New rate

Increase in rate

New rate

Hard coal

0,0 0,0 0,0 0,0 0,005 0,005 0,002 0,007

Electric energy

0,0 0,0 0,007 0,007 0,0 0,007 0,003 0,010

Petrol 0,065 0,065 0,0 0,065 0,010 0,075 0,0 0,075

Diesel oil 0,055 0,055 0,0 0,055 0,010 0,065 0,0 0,065

Heating oil

0,030 0,030 0,0 0,030 0,0 0,030 0,0 0,030

Alternative scenarioExcise taxes on hard coal and electrical energy imposed only on

households

Fuels 1 year of ETR 2 year of ETR 3 year of ETR 4 year of ETR

and electric energy

Increase in rate

New rate

Increase in rate

New rate

Increase in rate

New rate

Increase in rate

New rate

Hard coal

0,0 0,0 0,015 0,015 0,005 0,020 0,0 0,020

Electric energy.

0,0 0,0 0,020 0,020 0,010 0,030 0,0 0,030

Petrol 0,065 0,065 0,020 0,085 0,050 0,135 0,050 0,185

Diesel oil 0,055 0,055 0,020 0,075 0,050 0,125 0,050 0,175

Heating oil

0,030 0,030 0,0 0,030 0,0 0,030 0,050 0,080

Additional incomes of the State budget and deficits in incomes from social security contribution funds

(basic year 2001) Specifica-

tionBasic scenario Alternative scenario

  Additional tax incomes

Deficits in incomes of

social contribution

Additional tax incomes

Deficits in incomes of

social contribution

1 year of ETR

780,7 792,4 780,7 792,4

2 year of ETR

1 653,5 1 584,8 1 567,7 1 584,8

3 year of ETR

2 488,0 2 377,3 2 355,2 2 377,3

4 year of ETR

3 144,2 3 169,7 3 140,9 3 169,7

Comparison of retail prices of energy and motor fuels in 2001 (basic year) with prices under the

basic and alternative ETR scenarios Specification Basic scenario Alternative scenario

Energy and

motor fuels

Price in PLN/kg (kWh)

Excise tax rate

PLN/ kg (kWh)

Share of excise tax in price in %

Excise tax rate

PLN / kg (kWh)

Share of excise tax in price in %

Hard coal 0,45 0,007 1,6 0,020 4,4

Electric energy.

0,37 0,010 2,7 0,030 8,1

Petrol 3,10 0,075 2,4 0,185 6,0

Diesel oil 2,60 0,065 2,5 0,175 6,7

Heating oil

1,60 0,030 1,9 0,080 5,0

The concept of the Environmental Tax Reform (Institute for Sustainable Development, Warsaw,

October 2003)

The financial effects of ETR were given under the conditions of 2003.

The average employment in the national economy in 2003 as 8,643,000 persons.

The average salary in the national economy in 2003 as PLN 2,021 (gross).

Financial effects of reductions in social contribution rates

Reduction in payments to social security funds (together)

- 2,3

Increase in incomes from Personal Income Tax

+ 0,2

Together - 2,1

Financial effects of the additional employment on the sector of public finance

Financial effect Scenario

I 

ScenarioII

 Additional incomes from pension insurance contributions 0,1 0,2

Disability insurance 0,05 0,1

Health insurance, accident insurance, Labour and Guaranteed Social Benefits Fund

0,03 0,06

Additional incomes from PIT (together with contributions to National Health Fund)*

0,06 0,12

Additional incomes from Corporate Income Tax 0,1 0

Additional incomes total 0,25 0,5

Total financial effect on the public finance sector (after addressing shortages resulting from decreases in social insurance contribution rates)

- 1,8 -1,6

Mean annual increases in excise tax rates Specification   Scenario I Scenario II

Alternative I Motor fuels 12,7% 11%

  or    

  Electric energy

75,4% 65%

       

Alternative II Motor fuels 4,3% 2,6%

  Electric energy

1 grosz (0,01 PLN) / kWh

1 grosz (0,01 PLN) / kWh

Recommendations for the adjustment of the State budget in Poland in 2003 and 2004

The State budget could be “greened” to a meaningful extent only by the implementation of

the Environmental Fiscal Reform The financial base for the Environmental Fiscal

Reform should be taxes levied on selected fuels and energy carriers

The most favourable EFR option is widening of tax burdens on greater range of taxpayers, including both the sector of enterprises, the budget-supported sphere and households

The timeframe of EFR should be subject to negotiations between the Government and social partners

The Environmental Fiscal Reform should be strictly co-ordinated with the comprehensive reform of

public finance, the assumptions of which still continue to be discussed in Poland.

Suggestions for greening the State budget for 2005 and 2006 may base on the estimates made for 2003

and 2004 In designing the structure of EFR as an instrument

to green the State budget in the successive years, each time consideration should be given to the course of the reforms of social insurance systems and mechanisms now debated in Poland and the other European

Union countries

Investment outlays on environmental protection and water management according to financial sources

Specification

2000 2001 2002

Environmental protection total (PLN millions), of which:

6 570,3 6 168,9 5 027,1

Own financial means 53,4 51,8 46,7

Means: of the State budget 2,2 2,0 1,8

voivodships 1,6 1,0 1,7

poviats 0,2 0,3 0,4

gminas 1,4 0,8 0,9

Foreign financial means 3,9 3,2 4,2

Environmental funds (loans, credits, grants) 20,0 23,7 26,1

Loans and credits inland, of which from banks 11,7 12,1 12,3

Other financial means 5,6 5,1 6,0

Investment outlays on environmental protection and water management according to the shares of investors

Specification

2000 2001 2002

Environmental protection total (PLN millions), of which:

6 570,3 6 168,9 5 027,1

Enterprises 52,3 51,5 49,3

Gminas 44,4 46,6 47,8

Budgetary entities 3,3 1,9 3,0

Water management total (PLN millions), of which:

1 652,7 1 315,1 1 440,1

Enterprises 23,7 25,1 27,0

Gminas 39,4 41,2 38,0

Budgetary entities 36,8 33,7 35,0

Some tangible effects of investments in environmental protection and water management

in the year 2000-2003 Specification Unit 2000 2001 2002

Environmental protection        

Waste water treatment plants (facilities), of which:

X 324 262 197

       biological X 135 129 119

       with enhanced nutrient removal X 40 25 29

capacities of treatment plants total dam3/24h 1098 642 396

       biological dam3/24h 405 173 164

       with enhanced nutrient removal dam3/24h 364 312 202

Ability of commissioned system to        

       reduce particulate pollutants thous. ton/a. 170.3 66,5 17,1

       reduce gaseous pollutants thous. ton/a. 176,3 64,3 9,0