In 2016, the Earth Overshoot Day fell on August 8th; this marks the day from which humanity’s demand for resources in a given year exceeds what Earth can regenerate in that same year. We demand almost twice the planet’s ability to regenerate renewable resources, supply non-renewable resources and absorb our waste. This indicator provided by the Global Footprint Network exposes how urgent it is for us to reinvent our model. The dominant economic model - based on extracting, manufacturing, consuming, throwing away - only started to show its damaging effect a few decades ago and remains prevalent today; but its obsolescence no longer needs proof.
The economy will be circular or it won’t survive. This change of paradigm, which is causing some to fear a loss of competitiveness, will become a genuine opportunity, even a requirement for society, the environment and the economy. This will allow for the decoupling of economic growth and consumption of resources, water and energy. The transition needs a redesigned fiscal framework; one that supports employment and a more efficient use of resources. While 50% of European tax revenues are derived from labour, only 6% (4% in France) are related to the use of natural resources or pollution. This leaves considerable room for improvement if the United States is to align its fiscal policy with its sustainable development objectives, while improving the equilibrium of the country’s revenues.
Lowering the levy on labour and taxing the environmental externalities of products and services is not about adding more taxes to existing ones, but would involve shifting the tax burden from labour to resource use. Some countries have been following this path for some time now. Sweden, for instance, initiated an ambitious fiscal reform as early as 1991, setting up a tax regime on energy and pollution that was later intensified in 2001, when the carbon tax was increased substantially to over €112/tCO2eq today. This major contribution enabled the government to cut the income tax on labour, which distorts economic activity and competiveness. The highly consensual policy has succeeded in bridging political divisions and helps to maintain the Swedish welfare model. Note that while Sweden’s economic situation seems enviable today, this was not the case in 1991 when the country’s deficit stood at 10% and that the tax burden was unsustainable. Actually this was why the tax reform was initiated at the time.
Assessing the environmental and societal externalities of economic activity is becoming increasingly important in the economic realm, including in corporate life.
Assessing the environmental and societal externalities of economic activity is becoming increasingly important in the economic realm, including in corporate life. A large number of corporations say that factor in an internal carbon price when making investment decisions.
The recent Ex’Tax Project, New Era, new plan, a fiscal strategy for an inclusive circular economy study modelises the macroeconomic effects of shifting the tax base from labour to natural resources. The project concludes that such a tax policy – with an overall burden that would remain stable – could generate 6.6 million jobs in Europe (650,000 in France). It would raise the purchasing power of all socio-economic groups while simultaneously addressing the current environmental challenges. This highly educational and well-documented study is a major step towards rethinking a Europe where social and natural capital would see their status shift from victims to beneficiaries of the tax redistribution systems.