Tax policy review - low-income households and the green transition

Key points

The EESC:

• observes that the impact of the green transition will not be uniform across the EU and will vary substantially from country to country, as well as among different regions within Member States. In view of this, Member States must pay attention to the social challenges caused by the transition to enhance its legitimacy, maintain stability and avert populist opposition;
• also deems that a more targeted analysis should provide highly relevant data regarding households affected by the green transition, thereby allowing governments to take more appropriate measures to mitigate the impact of the ongoing process on poorer and vulnerable households;
• flags two main risks related to the green transition in terms of social and economic adverse implications and in particular: i) growing income disparities; and ii) the displacement of industrial sectors and related jobs;
• provided that taxation relating to the green transition is within the remit of Member States, the EESC underlines the importance of national fiscal measures to make the green transition more sustainable and less impactful on the weakest parts of the population;
• hence, fiscal policy should consist of three components during the transition: the polluter pays principle with complementary redistributive measures in support low-income households; targeted income support; and tax credits on energy-saving home products. This approach would i) support the purchase of electric vehicles; ii) incentivise the adoption of green technologies in homes; and iii) improve the energy efficiency of buildings (admittedly the revised Energy Tax Directive also aims to improve energy efficiency while protecting vulnerable groups). For the lowest income households who may have insufficient tax liability and may not benefit from tax credits, the recommended optimal measure is income support;
• as already pointed out in previous opinions, the EESC remarks that the Just Transition Fund, even if strategic, may not be enough to support the ongoing economic change and should therefore be supplemented by an adequately funded Social Climate Fund (SCF).