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Without complete overhaul of the tax system, French environmental taxation is destined to fail

This post follows two previous posts on the Bonnets Rouges movement in France, a first post retraced the history of environmental/farming tensions in Brittany, a second post highlighted the links between the CAP reform and the movement. This third post reflects on the failure of the ecotax in the greater context of environmental taxation in France.

On October 29th 2013 the French government suspended an environmental tax on heavy goods vehicles transporting commercial goods (lorries), after violent protests by agricultural workers in Brittany. The tax imposed new levies on French and foreign vehicles weighing over 3.5 tonnes and using the national network of publicly-managed roads. Working on a basis of a per-kilometre charge system, the tax was supposed to raise 1.15 billion euros annually, which were to be allocated to the French Transport Infrastructure Financing Agency and to the local and regional authorities for investments in infrastructures and projects to protect the environment and promote sustainable development. The aim of this policy tool is to trigger behaviour change among the shippers towards other modes of transport such as sea, river and rail freight.

This so-called ecotax stems from the ‘Grenelle Environnement’, a broad multi-stakeholder consultation organized in 2007 by then newly elected President Nicolas Sarkozy. It was adopted with cross-party support and enacted in August 2009. However, the government delayed its implementation three times, before eventually suspending it. In this post, I argue that the unfairness of the French tax system is such that it completely undermines the acceptability of any new tax. I further stress that environmental taxes inFrance can only hope to succeed if integrated within a global fiscal reform.

Environmental taxation in France: A history of failure

The ecotax episode recalls France’s failed attempts to implement carbon taxation over the past fifteen years[1]. In 2000, the left-wing government led by Lionel Jospin proposed to reduce employers’ social security contributions, to introduce a carbon tax as well as to increase business taxes. The project was censored by the French Constitutional Council who considered that it introduced a form of inequality among businesses: as some benefitted from exemptions while others did not. In 2009, the carbon tax reform proposed by right-wing president Nicolas Sarkozy involved a reduction in employers’ social contributions[2], financed by the introduction of a carbon tax. Initially defined and supported by an experts’ commission chaired by former left-wing Prime Minister Michel Rocard, the tax proposal lost public support and was eventually censored by the Constitutional Council.

Obstacles to environmental taxation

Beyond the specificity of each fiscal tool, the failed or delayed implementations of environmental taxes in France highlight three key points. First, successive governments have failed to address recurrent concerns associated with environmental taxation[3]. Due to concerns about competitiveness, and in spite of government attempts to address this issue by providing exemptions, opposition to environmental taxation does not cease. Besides, these exemptions may lead to a constitutional rejection on the basis of inequality among businesses, as experienced by previous carbon tax projects. Another concern relates to inequalities among households. Looking back at the carbon tax project in 2009, the general public as well as trade unions eventually turned against the proposal, despite simulation results showing positive impacts of the tax in terms of employment and the possible neutralization of inequality impacts via ‘green cheques’ given to households[4]. In fact, ‘double dividend’ gains of the reform appeared as too abstract and consumers focused on the sole increase of households’ energy bills in the short term.

Second, the potential of environmental taxation for implementing a fiscal overhaul has not yet been appreciated nor developed. The vast majority of policy-makers still conceive the tax instrument traditionally, as a way to raise state revenues rather than as an incentive to change behaviour. Thus, most environmental taxes are designed as add-ons to the existing tax system rather than within global fiscal reforms. For instance, the ‘Crédit d’Impôt Compétitivité Emploi[5]’, introduced by Jean-Marc Ayrault’s government so as to reduce business taxes while increasing general VAT and environmental taxes, was more an add-on to the existing system rather than an in-depth transformation[6], as it was initially announced by the candidate François Hollande during his election campaign. Yet, introducing environmental taxation within a wider fiscal reform with potential double dividend gains could be an efficient way to address competitiveness questions.

Finally environmental taxation will only be acceptable to households if the fairness of the overall tax system increases. The French tax system has been constantly criticized for its lack of equity, an issue that was raised during the 2012 presidential campaign. Some analysts have shown that the current tax system is a patchwork of successive reforms carried over the past hundred years or more that has led to an incomprehensible tax system marked by regressivity, i.e. low income households pay a higher share of taxes than wealthy households[7]. Therefore, considering the overall lack of fairness of the French tax system, environmental taxation will inevitably lack acceptability, whether it is additional or compensated by the reduction of other taxes.

The way forward: recast France’s tax system

In order to address the competitiveness and inequity arguments to increase environmental taxation’s chances of implementation in the future, the government must be determined to engage in – and complete – a fiscal overhaul that re-establishes the progressivity of the income tax (fairness increase) and shifts taxation from labour to pollution (competitiveness increase). In late November 2013, the government announced a general reform of the tax system, and in particular a broadening of its base; this could be the opportunity to integrate the ecological, social and economic dimensions of fiscal reforms.

[1]  Sénit, C-A. 2012a “France’s missed rendezvous with carbon-energy taxation” and Sénit, C-A. 2012b “The politics of carbon taxation inFrance: preferences, institutions and ideologies

[2] In particular, the “taxe professionnelle”, paid by businesses to local governments, was suppressed.

[3]  Chancel, L. 2013 “Carbon tax reforms inFrance: a decade of failed attempts” in  Chancel, L. and Isle, S. 2013 “Environmental Taxes and Equity Concerns – background paper prepared for the Social Platform Conference “go green, be social

[4] Combet, E. 2013 « Fiscalité carbone et progrès social » Thèse de l’EHESS, summary available here

[5] i.e. Tax rebate for employment and competitiveness

[6] Ibid. 4

[7] Piketty, T., Saez, E., Landais, C. 2011 « Pour une révolution fiscale » Seuil, Paris

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