France moves towards ecological tax reform

Interim national spending plan for 1999 introduces generalised green tax, hikes diesel tax

The French government has taken a significant step towards ecological tax reform, in the country's outline budget for 1999, which was announced yesterday. Under the plan, a new "generalised pollution tax" will be created, grouping 17 existing environmental taxes on water and air pollution and waste. Once established, the tax will be broadened and increased, raising expected revenues from FF2bn (Ecu0.3bn) in 1999 to FF14bn in 2000.

The new tax, known as TGAP, represents an attempt to "internalise more externalities," according to the environment ministry, which describes it as the "first step towards the creation of a real ecotax". The ministry also sees the initiative as a move towards a broader ecological tax reform, under which increases in environmental taxes would be balanced by reductions in other areas, particularly taxes on labour and employment.

"The intent in future is to raise the tax to strengthen the economic signal," a ministry official told ENDS Daily, but without raising overall taxation. One countervailing tax reduction already slated is a cut in VAT on separate collection and sorting of household wastes to 5.5%.

Increasing numbers of current environmental taxes will be brought into the TGAP system over time. In 1999, taxes on household waste, treatment of hazardous industrial waste, oils, noise pollution and air pollution will be included. Existing water pollution taxes affecting both industrial and domestic users are likely to be added in 2000, possibly along with a water consumption tax.

A range of other environmental taxes are likely to be brought within the system later, and more environmental taxes will be created, among them new taxes on agriculture.

The development represents a signal victory for environment minister Dominique Voynet, who won prime minister Lionel Jospin's backing for her strong promotion of environmental taxation against the scepticism of other ministers. "We have won the first fight against the finance ministry," an environment ministry official said, "but we will have to fight more and more."

In a second environmental tax move, the 1991 outline budget includes a decision to gradually raise taxes on diesel. France currently has one of the highest tax differentials in Europe between unleaded petrol (gasoline) and diesel. The government now proposes to reduce the gap to the European median over seven years through annual increases in diesel taxes of FF0.08-9 (Ecu0.01) per litre.

The move represents only a partial victory for Ms Voynet, who has described the current differential as "anti-ecological" and was pushing for taxes on unleaded petrol and diesel to be equalised. Instead, the differential will only be reduced from about FF1.43 per litre currently to FF0.97.

Follow Up:
French finance ministry, tel: +33 1 53 18 41 26; French environment ministry, tel: +33 1 42 19 20 21.

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