An eco-tax to finance the unconditional basic income

Revolution or evolution?

The dilemma between making a new beginning and continuing with what exists is a basic question in every decision. The Portuguese social state is in a dangerously difficult situation. More than two million people (20% of the population) live below the subsistence level. The state’s debt mountain is also extremely high. Treating the symptoms is no longer enough. Sometimes it becomes clear that clinging on to old structures will certainly lead into the abyss. There’s no point in stabilising the walls, when the whole house starts to slide. Then what is needed is a new build. A sustainable and viable solution would be a radical reorganisation of the social and tax system towards an economy defined by ecological and social priorities.

Making ecologically acceptable behaviour attractive, and problematic behaviour unattractive from a tax point of view is a novelty in tax legislation. Introducing an unconditional basic income (UBI) and financing it largely through an eco-tax would be one realistic possibility. In the same way as a tax is levied on every plastic bag from the supermarket, environmentally friendly products and behaviours can be promoted, and those that are environmentally unfriendly can be taxed more. However, a motorway tax should on no account be given away to a private company quoted on the stock market like BRISA, but rather should benefit the overall economy through an infrastructure such as the railways (CP).

Taxpayers should feel directly and financially how their consumption or their production affects the environment. The basic idea is that the citizens responsible for the use of resources (e.g. fossil fuels for travel, electricity generation, and of consumer goods) will have to bear a burden that arises from their use and that was previously shifted on to the general public and future generations, and that this will influence their lifestyle.

A Portuguese (or even European) eco-tax would have to be raised in the place where the undesirable environmental impact occurs. That would take place firstly at the start of the production chain, in line with the “polluter pays” principle. Anyone putting natural material X into circulation would have to pay tax A1. It would also happen at the end of the life cycle of a product, in line with the principle: anyone depositing material Y at a rubbish dump, or discharging it into rivers, lakes or seas, or releasing it into the atmosphere, would have to pay tax A2. Taxation exclusively at the beginning and the end of the life cycle of a product is administratively simple, because there are only a few points where tax would have to be paid.

The costs of the later disposal of a product should be included at the beginning in the end consumer price. When producers such as drinks manufacturers bottle water, milk or fruit juice in their factories in PET plastic bottles, Tetra Pak packets or cans, they will be obliged, as part of product stewardship, by the tax authorities to add on the cost of disposal. Products where the materials can be recycled (e.g. glass bottles with a deposit) should be cheaper for the end consumer.

Through taxation at the beginning and the end of the life of a product, the process is product neutral, it does not discriminate a priori against a particular product or a particular consumer preference. Whether a specific volume of CO2 emissions is caused by the production of a computer, by a plane or car journey, or by the heating or cooling of an additional room is irrelevant for the environmental effect, and they should therefore all be taxed in the same way.

Some of the suggestions for such ecological taxation of natural resources would be:

1. CO2 and methane emissions;
2. Phosphate and nitrogen discharge into the ground and waterways;
3. Using agricultural land for purposes other than food production;
4. Industrial livestock farming and fisheries in the oceans;
5. Soil sealing;
6. Extraction or importation of fossil fuels;
7. Mining or importation of mineral construction materials;
8. Mining or importation of metals (copper, iron, bauxite, rare earth elements);
9. Depositing building materials;
10. Depositing or exporting industrial waste, metals, synthetic materials.

These examples are not given at random. Rather, they have emerged from the current environmental debate in society as being especially problematic sources of pollution and danger to nature and the environment.

Assuming there was the political will and it was implemented correctly, an eco-tax would make problematic environmental exploitation more expensive and would lead to increased tax receipts that could ease the budgetary situation of a country like Portugal and fill the state coffers with all the debts of different previous governments.

A new tax on high environmental impact and emissions would promote a circular economy and efficiency in the same way as frugal behaviour. But it would also solve a further problem in environmental policy: the question of the regionalisation of production cycles. We all know the examples of the tomatoes from Holland, the oranges from Spain and the kiwis from New Zealand that “travel” through Europe to our supermarkets, even though these fruits grow here at home. Such problematic waste of fossil fuels can only occur when transport is cheap. An eco-tax on fuels and emissions would quickly make such an economy of resource wastage unattractive. It would favour a regional economy – more reliably and simply than any expensive subsidies could ever do.

An eco-tax would require both producers and consumers to pay up in no uncertain terms, and the burden for companies and for higher private incomes would increase. That is one key reason why an eco-tax is so unpopular. A government would clearly have to reckon with opposition from the industry, trade, banking and transport lobby, and with criticism from the public at large. And so the principle of taxing undesirable environmental impact would seem to run into a cul-de-sac. However, if it were correctly implemented from a political point of view, it would be simple to get out of the cul-de-sac again: the proceeds from ecological taxation would be reimbursed to every citizen equally: with the right to an unconditional basic income.

As a counterpart to the eco-tax, environmentally friendly train travel could be made cheaper (discount card), the creation of car pools for travelling to work could be supported through the tax system, car sharing with electric cars could be promoted, as well as the provision of free bicycles at all stations etc.

Eco-tax and redistribution

What we have learned is that the higher people’s income and the greater their prosperity, the more fossil fuels and electricity they use, and the greater their consumption. A UBI should be financed through an eco-tax charged when the emission of a certain volume of CO2 from travel, electricity and private consumption is exceeded – from the consumption that, in terms of our social and ecological attitudes, has a harmful impact on the environment and runs counter to the goal of “sustainable development”. An “ecological basic income” would mean, in the first place, the unconditional payment of a basic amount to every citizen from eco-taxes.**

Assuming that a UBI of 500 euros per month would be paid to every adult, that would make 6,000 euros a year. This would require 48 billion euros from the national budget. With an annual total budget of approximately 75 billion euros, this would represent a huge burden of approximately 64%.

But if all direct and indirect subsidies worth less than 500 euros per month were removed from the social, employment and pension share of the state budget, less than half the 48 billion euros would remain, i.e. some 24 billion euros, which would be needed in addition to finance a UBI.** To finance the rest through a new eco-tax would not be too difficult mathematically.

If CO2 emissions were consistently implemented at the level defined by the UN in the Kyoto Protocol in 1997, 3,000 kg of CO2 per citizen per year, more than half of all Portuguese taxpayers, mostly the affluent with cars with a cubic capacity of more than 1,200cc, would fall under the new eco-tax rules.

With an average kilometrage of 20,000 km per year and average emissions of 150 g CO2/km, the over four and a half million Portuguese-registered cars on their own would reach the limit per car owner of three tonnes of CO2.

Tax & Share

All additional CO2 emissions, as with electricity consumption, appear in the monthly bill from EDP. From the statistical point of view, every adult resident in Portugal is responsible for emissions of approximately six tons of CO2 per year from their private consumption and travel. (cf. data from the EU = 10 tons/CO2 per citizen per year) If people’s individual assessment basis was used to calculate how much extra the state could bring in from an eco-tax just on emissions, and if just one euro in extra tax were levied on every kilogram of CO2 (over 3,000 kg), that would make an additional 24 billion euro per year with eight million adult residents.*

From a purely mathematical point of view, therefore, there would no longer be an argument against financing an unconditional basic income of 500 euros for every citizen over the age of 18.