Austria's WIFO Recommends CO2 Tax

by Ulrika Lomas, Tax-News.com, Brussels

20 November 2009

According to a study conducted by the Austrian Institute of Economic Research (WIFO), the introduction of a carbon dioxide tax in Austria would generate in the region of EUR1bn annually for the government, which could subsequently be refunded to individuals and businesses in the form of reduced payroll taxes.

Indeed, the European Union (EU) is already currently considering the introduction of such a tax on carbon dioxide, to reduce emissions of greenhouse gases responsible for climate change.

Recent EU discussions focused on amending current energy tax guidelines, and proposed the introduction from 2013 of a levy of EUR30 on fuel and EUR10 on heating fuel per tonne of carbon dioxide emitted. This would increase the price of petrol by around 7.5 cents per liter, and the price of diesel by approximately 8.4 cents per liter.

The proposed EU carbon tax is to affect those areas not currently participating in the Emission Trading System (ETS).

Given that environmental taxes invariably increase the tax burden disproportionately on low-income earners, rather than dismiss the idea of a carbon dioxide tax, experts from the WIFO have advocated measures to counteract the negative effect, such as reducing the value-added tax rate by between 0.5% and 1%, or reducing payroll taxes.

According to WIFO, a move by the Austrian government to adopt an eco-friendly tax system, independently of the EU, would not reduce the competitiveness of the country’s energy intensive industries, as both payroll taxes and income tax could be lowered in return.

Indeed, a refund of this kind could even prove to have a positive effect on GDP and employment, WIFO added.

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