Calls for a wealth tax to support the green transition are growing in Europe.

Wealth tax still has a long way to go to make a big comeback in Europe, but there is movement in Brussels.

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Gradually, however, calls for a green transition tax are increasing in Europe, several initiatives from different political movements have put the issue (back) on the political agenda.

In a September report to the French parliament, Jean-Paul Matthias, a member of President Emmanuel Macron’s ruling party Modem, advocated such a tax to support the ecological transition. At the beginning of the summer, members of the Social Democratic Party, Aurore Laluc and Paul Magnet, submitted a request to the European Union Commission on the subject of a “European citizens’ initiative”.

If it collects a million signatures in at least seven countries in one year, it could lead to the creation of a European directive introducing an “ecological and social wealth tax” aimed at the 1% of the richest families. In July, the Commission gave the green light to the collection of signatures.

A study commissioned by the Green Group of the European Parliament and conducted by the NGO Tax Justice Network looked at the potential impact of such an initiative. A European tax on the richest 0.5% of households has been proven to generate €213 billion a year.

This is all the more remarkable given the virtual disappearance of wealth taxes in EU member states. In the year In 2023, only Spain has one, with a ceiling of €700,000 and a price that varies from one autonomous community to another. In France and Germany – the two countries that are the subject of our work – it seems unlikely that such a tax would be returned at the national level – the debate on climate issues seems very different at the European level.

It ended in France, it was banned in Germany

One of French President Emmanuel Macron’s first steps was to abolish the impôt de solarité sur la fortune (ISF), a “solidarity tax” on wealth introduced by the François Mitterrand government in 1981. To plug the budget hole, Macron replaced the wealth tax, IFI.

Despite the new tax, the change significantly reduced its revenue: the ISF brought 4 billion euros to the public coffers in 2017, the IFI only 2.35 billion euros in 2022. The effect of the change in reducing the rate of tax migration or improving the country’s competitiveness remains to be seen. Unconfirmed.

In Germany, the wealth tax is still part of the country’s basic law (it is governed by the country’s constitution), although it has not been imposed since June 22, 1995, when the Federal Constitutional Court ruled that the tax did not respect the principle of equality before – property was assessed based on property values ​​in 1964. Financial assets are valued at market value.

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Since property is taxed less than financial assets, the court asked the Helmut Kohl government to revise the property value on which the wealth tax is based. As the Kohl government chose not to do so, the tax was immediately suspended – though not repealed – on 1 January 1997.

It is unlikely to return to the national level

In the two countries, often described as the “engines of Europe”, the question of the return of capital tax is frequently raised. In Germany, all left-wing parties put it in their manifesto at every legislative election, but no one takes action except for De Linke.

In the year Our interviews with SPD and Green Party MPs between 2010 and 2016 show that wealth tax protection is only a facade. Rather than being included in the various collective agreements made over the years, the main aim seems to be to mobilize the support of the polls, unions and trade unions.

For example, in 2021 the SPD and the Green Party formed a new government together with the Liberal Party (FDP, right-wing). While they were adamant about reintroducing taxes on society’s wealthy, even as a temporary measure, the opportunity was quickly dismissed, and unsurprisingly.

In France, various strategies to reintroduce the wealth tax have been unanimously rejected by Emmanuel Macron, the Minister of Economy, Bruno Le Maire, said that the creation of such a tax “is not the solution”.

This situation is mainly due to how the opponents of the wealth tax have framed their arguments. Although initially conceived as a measure of unification in France and a budgetary resource for the Länder in Germany, the opposition successfully emphasized its impact on business. Although business assets are excluded from the tax base, the tax is dismissed as a hidden corporate tax. The claim was that the ISF would lead to an exodus of the rich through tax competition between states, capital flight and thus job losses.

A European solution?

Caught in this dilemma, wealth tax advocates shifted the battle to the EU level and linked it to a new issue – the environment.

An analysis of parliamentary records from 2010-2016 shows that no party in France or Germany used this political frame, including ecologists. The issue of reducing social and economic inequality through taxation has created a more compelling case that can attract broad support. A similar strategy has already been seen in other public policies such as the reform of the labor law in Portugal.

By moving to the European level, proponents of the wealth tax can bypass the criticism that individual country firms are being weakened by European economic competition. This is the amount that allowed the French Ministry of Economy to open the possibility of paying the European wealth tax.

If the European Citizens’ Initiative gets the required number of signatures, it will enable supporters of the wealth tax to mobilize European public opinion. Public opinion in many countries, including Germany, appears to support this move.

Wealth tax still has a long way to go to make a big comeback in Europe, but there is movement in Brussels. The continent’s far-right Eurosceptic parties Such a tax would lay the groundwork for a common tax system that would strengthen the EU as a whole as they seek to weaken it ahead of the 2024 elections.

This article was written by Martin Balogh, Lecturer in Political Science, Catholic Institute of Lille (ICL). Reprinted from the discussion under a Creative Commons license. Read the original article.

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