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ETR in industrialising countries

Lessonslearnedforgovernments

Oktober6,2016

JacquelineCo6rell

GCETGroningen

Structure

1.  Introductorycommentsonthereport

2.  RecommendaAonsforgovernmentsinindustrialisingcountries

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Introductory comments

§ Focusontrade-offsbetweenenvironmentaleffecAveness,fiscalobjecAves,privateinvestment,socialequityissuesandpoliAcaleconomyconsideraAons

§ Methodology§ DefiniAonsusedinthereport§ ThankstoD.I.E.–DeutschesInsAtutfürEntwicklungspoliAk/TheGermanDevelopmentInsAtute!

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1. Accurate targe:ng, few exemp:ons

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§ TargetsourceofpolluAonaccurately§ Maximisecoverage§ Onerateforallemissions§ MinimiseexempAons=oXendifficult=firststepsareimportant=preparethegroundforlaterreforms

2. Equip ETR measures with an escalator

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3. Smart instruments mixes to incen:vise private investment ETRshouldbestableandpredictableHowever,ETRdoesn‘tcreatealevelplayingfield,addiAonalmeasuresforinvestorsarenecessaryto:1.  ReduceregulatoryRISKforinvestors2.  IntroducepoliciestoboostorguaranteeRETURNoninvestmentE.g.Low-costloans,accelerateddepreciaAon,preferenAalinterestrates,long-termpowerpurchaseagreements,private-publicpartnerships,differenAatedimportduAes,taxcredits,provisionofinfrastructure,etc.

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4. If possible, think big!

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4. Tax design and fiscal considera:ons

CountrieswhichhaveintroducedboldermeasureshavehadrelaAvelyposiAveexperienceswithETR–because:1.  BoldermeasurescreatemoreopportuniAestosupportstakeholders

duringtransiAonandsecurebuy-in2.  Canalso„lockin“ETRmeasures,afiscaldrivercanensurepolicystability3.  IntroducingETRwithinbroaderfiscalreformpackagescanreduce

opposiAon,asETRmeasuresareseeninrelaAontoothertaxreforms4.  UseETRtoboostfiscalspaceandraiserevenuestoachievegreen

transiAonandtherealisaAonoftheSDGs

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4. Tax design and use of revenues

§ RevenueuseimpactsonGDP,employment,socialequity,environmentaleffecAveness,poliAcalacceptance

§ CanreduceopposiAon,getkeystakeholdersonside(thisalsoreferstoindustryconcernedaboutcompeAAvenessissues)

§ ALLsuchmeasuresshouldbeAme-limited,subjecttoregularreview§ LinkspendingtohighnaAonalpoliAcalprioriAes§ Dividend-sharing§ PoliAcalearmarking

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5. Protec:ng the vulnerable

§ Incomeinequalityhigh–lowerquinAlescanbehardhitbyrisingprices§ LackofcoverageofcompensaAonmechanismsalongmulApledimensionsofinequality

§ Focusontaxbaseswhichtendtobeprogressive§ RetainincenAveeffectofETRifpossibleIdeally,compensaAonmechanismsshould:1.  DrivetransiAon(socialtransformaAonpolicies)2.  Secondbest–takeadvantageofsynergiesandco-benefits

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6. Administra:ve issues

§ TaggingontoexisAngeffecAvecollecAonmechanismscanreducecostsandpotenAalforcorrupAon/difficulAesinenforcement

§ ETRisdifficulttoevade–appealtothosecountrieswithlargeinformalsector

§ Userevenuestoimproveenforcementandbuildcapacity§ Canresultinimprovedfiscalgovernanceinthefuture

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7. Poli:cal economy

§ CommunicaAon–shouldbeclear,emphasisingrewardsandbenefits,presentETRasapolicychoice

§ Inter-ministerialcooperaAonhelpsavoid“silothinking”§ Mayhelpaddressministerialrivalries§ ThismayrequirenewstructurestofacilitateinteracAonsandcollaborateonpolicy,e.g.Thailand’sclimatechangecommiiee

§ Stakeholderinvolvementalsoimportant§ RevenuescanbeusedtoaddressobstaclestoETRmeasuresassociatedwithe.g.industrystakeholders

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Brief conclusions

§ TheoryandrealityofimplemenAngETRarenoteasytoalign§ Makingastartisimportant!§ Trade-offsmaybenecessary–buttheycanbeimplementedinsuchawaythatenvironmentaleffecAvenessisnotcompromisedmorethannecessary

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JacquelineCo6rellJacqueline.Co6rell@green-budget.eu 16