The European Commission, the EU’s executive body, began planning almost two years ago for new revenue sources to help fund the 27-nation bloc’s proposed 1.13 trillion euro ($1.23 trillion) seven-year budget.
Until now, the budget has been financed by member state contributions, import duties, and a percentage of each member state’s national value-added tax rate.
But the U.K.’s exit from the bloc has left a budget “Brexit gap” of more than 10 billion euros to fill.
With an urgent meeting on Feb. 20 to set the 2021-2027 budget, the most promising proposal on the table is a levy of 80 euro cents (87 U.S. cents) per kilogram of non-recycled plastic.
Europeans generate 25 million tons of plastic waste each year, according to the commission, and less than 30% is collected for recycling.
Among the options initially envisioned were a financial transaction tax and a pending corporate tax reform known as the common consolidated corporate tax base.
Legislative negotiations for both are gridlocked because of opposition from some countries reluctant to accept EU initiatives when it comes to tax. The plastic tax is thus the only viable option.
Paivi Valkama, a Finnish diplomat who has been closely involved in the budget negotiations, said there had been “relatively little opposition” to the plastic tax proposal.
Budget talks, arduous in the best of times, promise to be especially tough this year, with negotiations complicated by the sluggish economy and a need to help poorer EU countries meet the bloc’s 2050 carbon-neutrality goal adding to the post-Brexit crunch.
In the event that talks fail on Feb. 20, numerous programs will be endangered, European Commission President Ursula von der Leyen warned Feb. 12 in a speech to the European Parliament. “We will simply not succeed in achieving climate neutrality,” she said.
Linked to Climate Agenda
A tax of 80 euro cents per kilogram on non-recycled plastic would be the equivalent of a a 2.4-cent levy on a 1.5 liter (1.6 quart) plastic water bottle and would bring in between 4 billion euros and 8 billion euros a year.
The figures, according to commission officials, are based on data EU member states report every 18 months as required by the EU packaging waste legislation.
“This contribution is fair and logical because it is clearly linked to our climate agenda,” commission spokesman Balazs Ujvari told Bloomberg Tax.
Support for the plastic tax has to be unanimous, though. If agreement is to be reached, Poland and several other central European states need to be convinced it isn’t unfair for countries that don’t have the financial resources to establish comprehensive recycling systems.
“We do not support regressive proposals that put a disproportionate burden on less prosperous member states,” Adrian Biernacki, spokesman for Poland’s permanent EU representative, told Bloomberg Tax.
If EU member states can reach an agreement, negotiations will start to finalize a deal with the European Parliament. EU legislators last year approved their own version of the 2021-2027 budget.
They have backed not only a plastic tax, but also a carbon border tax that would help fund the EU coffers and achieve climate goals.
“A plastic tax is acceptable but our priority is a carbon border tax as it would bring in considerable more money and would be a long term source of revenue,” Sven Giegold, a Green Party member of the European Parliament, said.
The new European Commission, which took office in December, is considering such a carbon tax on goods and services from countries that don’t abide by the Paris climate agreement, to “ensure that the price of imports reflects accurately their carbon content.”
But EU officials are wary of imposing such a tax before the bloc has adopted its own carbon tax, because, they say, Europe risks being drawn into disputes with trading partners who see it as an unfair barrier to trade.
“The carbon border tax might work out at some point in connection with the green deal or a wider climate deal,” Valkama, the Finnish diplomat, said. “But it could face severe problems from the point of view of trade agreements.’’
“It is not ripe for a decision,” Valkama said.
Published on news.bloombergtax.com