The following report is based on a more detailed version written by Aleksandra Wojewska (VIDC/University of Vienna).

© Terhas Berhe

The event featured two Austrian tax experts: Margit Schratzenstaller, a Senior Economist at WIFO (Austrian Institute of Economic Research), and Claus Staringer, a full professor and vice head of the WU Institute of Austrian and International Tax Law. Martina Neuwirth (VIDC) moderated the discussion. After both inputs, guests from the audience joined the conversation – amongst them members of the Tax Justice Europe Network which met in Vienna.

Taxes & Environment: Price harmful activities but holistic approach is needed as well

Margit Schratzenstaller shared her reflections on the potential contribution of tax systems to a fair transformation towards socio-ecological sustainability. She emphasized the need for transformative tax systems to appropriately price environmentally harmful activities while incentivizing green initiatives. She proposed a moderate taxation of labor income, considering gender dynamics like a disproportionate burden on women due to care work. Options for utilizing revenues from environmental taxes could include a) funding additional expenses for green transitions, b) implementing transformative tax shifts, or c) providing lump sum transfers to taxpayers, as practiced in Austria. She advocated for a tailored country-specific approach.

Margit Schratzenstaller © Terhas Berhe

Margit Schratzenstaller argued that environmental taxes are often regressive and therefore should be mitigated by other features in the tax system design, such as lump sum payments to low-wage earners. In the longer run, lower-income groups should be enabled to switch to more sustainable consumption patterns. Expanding affordable universal social services like equitable access to childcare and public transportation is also crucial. Schratzenstaller also raised the question of whether higher-income groups should contribute more to environmental improvement, as they typically consume more resources and are responsible for higher emissions while they are less exposed to adverse climate change impacts.

Schratzenstaller mentioned the low Austrian carbon price and an insufficient coverage by environmental taxes of activities beyond emissions, like waste, electric vehicles, or land use. The low tax revenue contribution of wealth-based taxes, like inheritance and property taxes, was also noted, being neither aligned with environmental nor tax justice goals.

In the following discussion with the audience, alternatives to carbon taxation, like resource taxes or higher VAT (Value Added Tax) rates for environmentally damaging behaviour, were explored. The EU Carbon Border Adjustment Mechanism (CBAM) was mentioned critically and the trade-offs of a global carbon price were discussed. As the tax system cannot be separated from the budget, difficulties in implementing Austria’s green and gender-responsive budgeting were discussed. Schratzenstaller emphasized that the focus of environmental taxation should be much broader, targeting both production and consumption. Not everything could be done by carbon taxation, and even a global carbon price would have to be accompanied by a global compensation mechanism for poorer countries. She concluded by hinting at the necessity of a holistic approach, as the tax system alone cannot fix all environmental problems.

Global Minimum Tax: a complex system with questionable revenue results for most countries

Claus Staringer provided insights into the OECD’s Global Minimum Tax (GMT) and its implications for international tax governance. The GMT was endorsed by over 135 member jurisdictions of the OECD/G20 in 2021. Staringer explained that the GMT establishes a minimum tax rate of at least 15% on the standardised corporate profits of multinational companies (MNCs) with an annual turnover exceeding 750 million Euros. The concept is technically highly complicated, leading to concerns expressed by MNCs regarding their compliance burden. If the profits of MNEs are taxed below the threshold of 15%, because a country is a tax haven or investors are to be attracted, then this country can apply a top-up tax on those profits to reach the 15%. All tax incentives are therefore covered by the GMT. If the country declines to apply the top-up tax, the home countries of these MNCs can tax those undertaxed profits. According to Staringer, the overall aim of the GMT was to ensure that MNCs’ profits are taxed at a minimum, no matter where.

© Terhas Berhe

The rules were modelled in the OECD and the so-called Inclusive Framework (with a membership beyond OECD countries). Today, the GMT is adopted by some frontrunners, first and foremost the EU. Outside Europe, the picture is rather mixed. With regards to the US, Staringer anticipated that the GMT would become a topic of greater consideration only after the 2024 presidential elections.

Staringer noted that criticism has been directed at the Inclusive Framework process for not being inclusive. This might have led to the UN process for a new Tax Convention which is currently under negotiation. Some parties want the GMT to be part of it. This convention might be easier to adopt because majority voting is possible in the UN. However, countries will have to ratify the convention so that it becomes legally binding. As tax is a new area for the UN, it is too early to know what to expect.

Claus Staringer & Martina Neuwirth © Terhas Berhe

The discussion with the audience highlighted that the GMT might lead to far lower effective tax rates than 15%. It was argued that also European high-tax countries could profit from the UN process, as their revenue expectations from the GMT are quite low, too. It remains to be seen where the extra revenues of the GMT will go. At the moment, low-tax countries seem to benefit most from the current design of the GMT. Its efficacy in combating tax havens and creating a more equitable tax revenue distribution between Global South and North countries was therefore questioned. According to Staringer, this is due to the fact that the GMT does not look outside its own system. Tax competition might therefore shift to another level in the future.

This event was organized on the occasion of the Vienna meeting of Tax Justice Europe, a network of more than 80 European civil society organizations dedicated to tax justice and one of the regional hubs of the Global Alliance for Tax Justice. The network advocates for fair and transparent domestic tax systems at national levels and strives for a global tax regime that fosters international cooperation and prevents tax evasion. The network has a particular focus on the impact of European tax policies on countries of the Global South.

Video interviews

Click on a video to open it on YouTube.

Why are so many people meeting in Vienna to talk about taxes, Tove Ryding?
What is the link between taxation and justice, especially from a the Global South perspective, Dereje Alemayehu?
How can taxes help to tackle the climate crisis, Margit Schratzenstaller?
How can taxes help to tackle inequalities, Chiara Putaturo?
What does the VIDC do in the field of tax justice, Martina Neuwirth?