Environmental Fiscal Reform in Hungary

Current developments

Zoltán Szabó

Clean Air Action Group, Hungary

Past decade

• Some of CAAG’s recommendations have been implemented, but no EFR in sight yet

• Unfavourable changes and hopeful signs as well in the state budget during the past decade

CO2 emissions in Hungary

(kilotons/year)

 

Source: Ministry of Environment and Water

AgricultureIndustryOther heat prod.

Power plants

TransportServicesHouseholds

Taxes and inflation in Hungary

0,0

200,0

400,0

600,0

800,0

1000,0

1200,0

1400,0

1600,0

1800,0

2000,0

State revenue from taxes on wages

Taxes on wages per employed person

Consumer price index

Excise duties

100

150

200

250

300

350

400

450

500

550

600

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

Consumer price index

Price of unleaded petrol 95

The consumer price index andthe price of unleaded petrol in Hungary

1991=100

Fuel tourism

The amount of fuel brought into Hungary in the tanks of cars, trucks and buses equals to 30% of the total fuel consumption.

The loss of state revenues:

200 billion HUF/year.

Foreign trucks entering Hungary

0

200

400

600

800

1000

1200

1400

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Year

Th

ou

san

d t

ruck

s

Territorial distribution of CO emission from transport

In 2004 the government plans to spend

260 billion HUF on the construction of new motorways.

Existing and Planned Motorways in Hungary

Yellow – places which can be reached in less than 15 minutes from the motorway

Orange – places which can be reached in less than 30 minutes from the motorway

19881988

 

 

20032003

20062006

 

 

20152015

In Hungary heavy trucks cause about 300 billion HUF (over 1 billion Euros) of unpaid damage yearly (damage to roads, buildings, utilities; environmental pollution, health effects, accidents).

Some solution

Parking fees Road pricing (see London) More funds for

• public transport• cycling• pedestrianization of streets• traffic calming• revitalization of urban space (brownfields)

Tax on green area conversion

Agriculture, land use

• Reduced VAT rate for fertilisers and pesticides

• Little incentives for organic farming

• Price of land is low comparing to that of the EU countries

– Green areas are disappearing at an enormous rate (urban sprawl, shopping malls, low-density residential areas, roads, new industrial sites, warehouses)

Land useCountry Average land price

1000 Euro/hectare Luxembourg 60,0 Netherlands 18,0 Germany (Western part) 15,6 Belgium 12,1 Spain 10,0 Denmark 6,1 England 4,9 France 3,0 Finland 2,7 Hungary 1,0

Land Protection Fee

(paid when converting an agricultural or other green area to a zone for construction)

• very low• many exemptionsCAAG’s proposal to substantially increase the fee and eliminate

exemptions:• supported by the Ministry of Environment• supported by the Ministry of Agriculture and Rural Development• supported by the Department for Strategic Analyses of the Prime

Minister’s Office• unanimously approved by the Environmental Committee of the

Hungarian Parliament• voted down by the Parliament

Some environmental taxesin Hungary

• Product charges– on packaging materials, lubricating oil, refrigerators, car

batteries, vehicles tires, paints and solvents– introduced already in earlier years

• Environmental load fees– on air, water and soil– to be introduced in 2004

• Energy tax– to be introduced in 2004

Recent developments• Environmental load fee on air, water and soil pollution.• A new energy tax was introduced in accordance with the EU directive,

but it will be 40% higher than required by the directive.• The VAT on electricity was raised from 12% to 25%.• The annual car tax was raised by more than 20%.• The tax on company cars raised by 100%.• A 25% VAT was introduced for construction areas (until now no VAT

existed for these), which might stimulate a little more the rehabilitation of old buildings instead of construction in green areas.

• A new type of registration tax was also introduced which disfavours the buying of old cars.

• The personal income tax was reduced, however its positive effects are neutralized by an increase in the social security tax.

• There is also a very negative result of all the positive changes: the extra revenues will be used to build new motorways

Necessity and possibilities of an eco-social budget reform

Proposals for the 2004 State Budget of Hungary

• Maintaining the long-term equilibrium through financial instruments

• Environmentally-friendly and solidarity-based development of the Hungarian society

Reduction of wage costs and increase of subsidies granted for social tasks that

cannot be placed on a market basis

• Reduction of labour costs– Reduction of social security contribution– Reduction of personal income tax

• Increasing state contribution to activities indispensable for the Hungarian society and its development but practically unfeasible under pure market conditions– Increasing state contribution to cultural activities, education, healthcare and

scientific research– Restoration of the real value of family allowance to its 1994 level– Improvement of pensions and other social welfare services– Improvement of public safety– Support to underdeveloped and disadvantaged regions in Hungary– Transformation of the Hungarian housing policy– Higher state contribution to environmental protection and healthcare– Increased support to small and medium-sized enterprises– Promotion of environmentally sound tourism

Elimination of subsidies granted to activities damaging the environment and

human health Transport

– Valorization of excise duties on petrol– Increased excise duties on diesel fuel– Imposing excise duties and VAT on fuels entering Hungary in fuel

tanks of motor vehicles– Valorization, increase and better collection of motor vehicle taxes– Imposing infrastructure charges on heavy trucks in compliance

with the principle of competition under equal terms– Imposing highly progressive road charges on motor vehicles with

axle loads above 10 tons– Uniform rates of daily travel allowances– Stricter rules for accounting expenses of motorcar use– Increased taxes on company cars

Elimination of subsidies granted to activities damaging the environment and

human health Transport -continued

– Increase of consumption tax (registration fee) on motorcars– Increase and effective collection of consumption tax (registration

fee) on used motorcars– Raising funds for handling motor vehicle wrecks

Elimination of motorcar credits granted by withholding VAT unlawfully

– Substantial reduction of subsidies to construct further high-speed roads

– Abandonment of direct and indirect subsidies granted to the Formula-1 Hungarian Grand Prix

– Collecting VAT on foreign busesIntroduction of urban road charges

– Compulsory introduction of parking fees– Postponement of the construction of Metro line 4 in Budapest– Increased taxes and duties on air transport

Elimination of subsidies granted to activities damaging the environment and

human health Energy

– Harmonization of taxes on electricity, natural gas and coal

– Current situation in natural gas and electricity prices for household use in Hungary and proposals for a solution

– Extension of the energy efficiency programme

– Proportionate refilling of the Central Nuclear Fund

– Investment policy changes in the energy sector

– Purchase of natural gas through barter transactions

– Raising to 25 per cent the VAT rate applicable to artificial fertilizers and some other products

Elimination of subsidies granted to activities damaging the environment and

human health Environmental load fees, environmental product charges

and mining taxes – Introduction of air load fee

– Introduction of water load fee

– Introduction of soil load fee

– Increase and extended scope of environmental product charges

– Increased mining taxes

– Stricter rules for the treatment of hazardous wastes

– General and mandatory use of deposit refund

Elimination of subsidies granted to activities damaging the environment and

human health Protection of green areas and arable land; taxes

promoting environmentally friendly agriculture – Increased land protection fees– Extended scope of land protection fees– Introducing up-to-date appraisal methods for the evaluation of

trees and shrubs– Environment-oriented taxes on agricultural production

Transformation of the agrarian subsidization system– Introduction of a charge on covering large areas– Lowering the rate of local trade taxes – Increasing the locally used portion of environment protection fines

General results of CAAG proposals

• Raising awareness on Environmental Fiscal Reform

• Establishment of a Green Budget Working Group at the Environmental Committee of the Hungarian Parliament

• The opposition party embraces CAAG’s proposal for obstructing the government

• Several proposals are adopted

Thank you for your attention

www.levego.hu

Clean Air Action Group Zoltán Szabó