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Environmental Fiscal Reform in Hungary
Current developments
Zoltán Szabó
Clean Air Action Group, Hungary
Past decade
• Some of CAAG’s recommendations have been implemented, but no EFR in sight yet
• Unfavourable changes and hopeful signs as well in the state budget during the past decade
CO2 emissions in Hungary
(kilotons/year)
Source: Ministry of Environment and Water
AgricultureIndustryOther heat prod.
Power plants
TransportServicesHouseholds
Taxes and inflation in Hungary
0,0
200,0
400,0
600,0
800,0
1000,0
1200,0
1400,0
1600,0
1800,0
2000,0
State revenue from taxes on wages
Taxes on wages per employed person
Consumer price index
Excise duties
100
150
200
250
300
350
400
450
500
550
600
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
Consumer price index
Price of unleaded petrol 95
The consumer price index andthe price of unleaded petrol in Hungary
1991=100
Fuel tourism
The amount of fuel brought into Hungary in the tanks of cars, trucks and buses equals to 30% of the total fuel consumption.
The loss of state revenues:
200 billion HUF/year.
Foreign trucks entering Hungary
0
200
400
600
800
1000
1200
1400
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Year
Th
ou
san
d t
ruck
s
Territorial distribution of CO emission from transport
In 2004 the government plans to spend
260 billion HUF on the construction of new motorways.
Existing and Planned Motorways in Hungary
Yellow – places which can be reached in less than 15 minutes from the motorway
Orange – places which can be reached in less than 30 minutes from the motorway
19881988
20032003
20062006
20152015
In Hungary heavy trucks cause about 300 billion HUF (over 1 billion Euros) of unpaid damage yearly (damage to roads, buildings, utilities; environmental pollution, health effects, accidents).
Some solution
Parking fees Road pricing (see London) More funds for
• public transport• cycling• pedestrianization of streets• traffic calming• revitalization of urban space (brownfields)
Tax on green area conversion
Agriculture, land use
• Reduced VAT rate for fertilisers and pesticides
• Little incentives for organic farming
• Price of land is low comparing to that of the EU countries
– Green areas are disappearing at an enormous rate (urban sprawl, shopping malls, low-density residential areas, roads, new industrial sites, warehouses)
Land useCountry Average land price
1000 Euro/hectare Luxembourg 60,0 Netherlands 18,0 Germany (Western part) 15,6 Belgium 12,1 Spain 10,0 Denmark 6,1 England 4,9 France 3,0 Finland 2,7 Hungary 1,0
Land Protection Fee
(paid when converting an agricultural or other green area to a zone for construction)
• very low• many exemptionsCAAG’s proposal to substantially increase the fee and eliminate
exemptions:• supported by the Ministry of Environment• supported by the Ministry of Agriculture and Rural Development• supported by the Department for Strategic Analyses of the Prime
Minister’s Office• unanimously approved by the Environmental Committee of the
Hungarian Parliament• voted down by the Parliament
Some environmental taxesin Hungary
• Product charges– on packaging materials, lubricating oil, refrigerators, car
batteries, vehicles tires, paints and solvents– introduced already in earlier years
• Environmental load fees– on air, water and soil– to be introduced in 2004
• Energy tax– to be introduced in 2004
Recent developments• Environmental load fee on air, water and soil pollution.• A new energy tax was introduced in accordance with the EU directive,
but it will be 40% higher than required by the directive.• The VAT on electricity was raised from 12% to 25%.• The annual car tax was raised by more than 20%.• The tax on company cars raised by 100%.• A 25% VAT was introduced for construction areas (until now no VAT
existed for these), which might stimulate a little more the rehabilitation of old buildings instead of construction in green areas.
• A new type of registration tax was also introduced which disfavours the buying of old cars.
• The personal income tax was reduced, however its positive effects are neutralized by an increase in the social security tax.
• There is also a very negative result of all the positive changes: the extra revenues will be used to build new motorways
Necessity and possibilities of an eco-social budget reform
Proposals for the 2004 State Budget of Hungary
• Maintaining the long-term equilibrium through financial instruments
• Environmentally-friendly and solidarity-based development of the Hungarian society
Reduction of wage costs and increase of subsidies granted for social tasks that
cannot be placed on a market basis
• Reduction of labour costs– Reduction of social security contribution– Reduction of personal income tax
• Increasing state contribution to activities indispensable for the Hungarian society and its development but practically unfeasible under pure market conditions– Increasing state contribution to cultural activities, education, healthcare and
scientific research– Restoration of the real value of family allowance to its 1994 level– Improvement of pensions and other social welfare services– Improvement of public safety– Support to underdeveloped and disadvantaged regions in Hungary– Transformation of the Hungarian housing policy– Higher state contribution to environmental protection and healthcare– Increased support to small and medium-sized enterprises– Promotion of environmentally sound tourism
Elimination of subsidies granted to activities damaging the environment and
human health Transport
– Valorization of excise duties on petrol– Increased excise duties on diesel fuel– Imposing excise duties and VAT on fuels entering Hungary in fuel
tanks of motor vehicles– Valorization, increase and better collection of motor vehicle taxes– Imposing infrastructure charges on heavy trucks in compliance
with the principle of competition under equal terms– Imposing highly progressive road charges on motor vehicles with
axle loads above 10 tons– Uniform rates of daily travel allowances– Stricter rules for accounting expenses of motorcar use– Increased taxes on company cars
Elimination of subsidies granted to activities damaging the environment and
human health Transport -continued
– Increase of consumption tax (registration fee) on motorcars– Increase and effective collection of consumption tax (registration
fee) on used motorcars– Raising funds for handling motor vehicle wrecks
Elimination of motorcar credits granted by withholding VAT unlawfully
– Substantial reduction of subsidies to construct further high-speed roads
– Abandonment of direct and indirect subsidies granted to the Formula-1 Hungarian Grand Prix
– Collecting VAT on foreign busesIntroduction of urban road charges
– Compulsory introduction of parking fees– Postponement of the construction of Metro line 4 in Budapest– Increased taxes and duties on air transport
Elimination of subsidies granted to activities damaging the environment and
human health Energy
– Harmonization of taxes on electricity, natural gas and coal
– Current situation in natural gas and electricity prices for household use in Hungary and proposals for a solution
– Extension of the energy efficiency programme
– Proportionate refilling of the Central Nuclear Fund
– Investment policy changes in the energy sector
– Purchase of natural gas through barter transactions
– Raising to 25 per cent the VAT rate applicable to artificial fertilizers and some other products
Elimination of subsidies granted to activities damaging the environment and
human health Environmental load fees, environmental product charges
and mining taxes – Introduction of air load fee
– Introduction of water load fee
– Introduction of soil load fee
– Increase and extended scope of environmental product charges
– Increased mining taxes
– Stricter rules for the treatment of hazardous wastes
– General and mandatory use of deposit refund
Elimination of subsidies granted to activities damaging the environment and
human health Protection of green areas and arable land; taxes
promoting environmentally friendly agriculture – Increased land protection fees– Extended scope of land protection fees– Introducing up-to-date appraisal methods for the evaluation of
trees and shrubs– Environment-oriented taxes on agricultural production
Transformation of the agrarian subsidization system– Introduction of a charge on covering large areas– Lowering the rate of local trade taxes – Increasing the locally used portion of environment protection fines
General results of CAAG proposals
• Raising awareness on Environmental Fiscal Reform
• Establishment of a Green Budget Working Group at the Environmental Committee of the Hungarian Parliament
• The opposition party embraces CAAG’s proposal for obstructing the government
• Several proposals are adopted
Thank you for your attention
www.levego.hu
Clean Air Action Group Zoltán Szabó