green tax shift

The so-called green tax shift is used both to describe an event that has already occurring to a great degree in Europe, and another that is advocated in North America. In both cases the motive is to express green economics in tax policy.


What rises, what falls

The green tax shift is to reduce corporate income tax (starting with the most sustainable industries) and personal income tax (starting with the poor) while cutting corporate welfare - the giving of direct subsidies to industries and specific companies. Meanwhile, consumption taxes (starting with unhealthy goods - including gas taxes which encourage overuse of cars and trucks when too low), would rise.

Both corporations and individuals would pay more for cement, wood, gasoline, but less for building automation systems, fuel cells and hybrid cars. In this shift many harms to health and the ecosystem are prevented. These in turn radically reduce expenditures by government so that programs to soften the blow of industrial and community and family adjustment significantly.

What happened in Europe

Realizing this, European governments began a long term green tax shift away from incomes and onto consumption many years ago. Corporate income tax was actually lower in Europe in 2004 than in the US (40%) or Canada (36%). Personal income tax is lower in many countries too, notably in the UK. But yet most Canadians continue to believe European income taxes are higher.

Meanwhile, consumption tax is much lower in North America than in Europe: the "Value Added Tax" (like the Canadian GST) is the source of the majority of government revenues, and exemptions tend to be applied only for traditional or simple/healthy food and clothing. This system is also very much more enforceable than income tax, since it's very hard to set up an elaborate system to evade the tax on a restaurant meal or hotel room.


In the green theory, there is more wealth gained from 1. simplicity 2. consistent collection 3. more jobs due to employment being easier to create 4. industry using far less energy and materials and saving natural capital and 5. an economy that presents clear incentives for the most creative and conservation-minded breakthroughs.

Green tax policy is also more productivity-enhancing than neoclassical economics and it's "use taxes only to raise income" view, in that it removes taxes from inputs like education and culture, which tend to be critically important in bringing together the social networks and creative networks that actually make the economy move forward.


Green view of taxes

Greens want to stop taxing all services, nutritious local organic food, buildings, educational material, telecommunications, public transit, and anything that conserves energy (LED or spiral bulbs, insulation, home DC power equipment). They propose to tax resources, addictive goods, additives, packaging,
processed foods, sugar, goods that require inspection or certification, and capital goods that in their normal use cause more harm than their alternatives (log skidders, for instance, aren't part of sustainable wood harvesting, and trawlers do damage to fish nurseries so the Capital Cost Allowance for these should not exist or be very low).

If all these things were done most goods would be taxed at no more than the present 15% most provinces apply, but services would be at 0%. Income taxes would not exist for the working
poor, and high-income people with healthy lifestyles would pay less than they do today in total taxes.

With a seamless social safety net in place, income taxes could drop as consumption taxes rise, making the Canadian tax system more like that in Europe. See EU green tax shift.

"20 years ago, you would not likely have believed that Europe would now consist of 25 countries all in one common market with a core Eurozone using a common currency, and that this currency would be displacing the US dollar as international standard reserve currency. Well, it is, and the green tax shift is one reason why." - Craig Hubley

Simplify business tax

The reduction or removal of tax on services has major implications:

The business tax system today penalizes hiring and encourages too much investment in capital goods, and not enough in training and education. In part because taxes are levied on services.

Avoid taxing income

In theory, a conventional income tax is paid equally no matter whether you make your money dumping toxic waste, making weapons, lying to stockholders, or designing new windmills or organic fabric clothing or tidal power systems or conciousness-raising art. In practice, those who are busy in creative endeavours and pay attention to nature and nature's concerns have little time to study and exploit the loopholes and make friends in high places, so they usually pay more tax, proportionally, than those whose businesses rely inherently on harm, power, connections and corruption.

By emphasizing the quantity of income rather than the quality of how it is made, income tax harms well-being.

Especially on corporations

Corporate income tax is even worse: a corporation will happily spend $499,999 in lawyers' and accountants' fees to save $500,000 in taxes because it has no social conscience built in.

While individuals might hestitate before such antisocial moves, corporations, particularly global transnational corporations, won't. Also, an elaborate corporate income tax avoidance structure (quite legal) makes it very easy to cheat shareholders or just justify overly complex structures that make it possible for future managers to cheat shareholders. Meanwhile, every cent of corporate income tax is passed on to the consumer, meaning that organic food, home automation gear that saves energy, home insulation, fuel cells, windmills and hybrid dieselectric cars all include hidden corporate income tax, and again, likely it is more tax proportionally than is included in huge televisions, jacuzzis, SUVs, fatty foods, since, those industries always seem to have more friends in power since they rely on cheap access to energy and materials, that can only be guaranteed by government.

Reward corporate transparency/simplicity

Making business taxes simpler and more enforceable, and encouraging corporations to become simpler, is anticipated to have substantial benefits:

Corporations would be taxed on the wealth they retained, but small business could get by with much less paperwork since the corporate tax system would be drastically simplified.

Businesses could fire those lawyers and accountants that do nothing but make corporations too complex to audit: whether by design or by consequence, they are created to structurally cheat the government, then the employees, then finally the investors. Complex companies do no one much good:

Some advocates of green tax shifting propose to make it easy to sell shares in simple auditable
shells that pay dividends, don't hold onto cash, don't give too much discretion to managers, aren't legally persons, don't encourage unhealthy lifestyles, don't interfere in politics, and don't pretend to be charities by giving to causes their employees and investors should be giving to, not the ones their managers think will be a good public relations move. Doing any of these things would remove the exemption in place.

Encourage local manufacturing

By taxing resources directly, Canadian goods (that use no more resources than Chinese goods) would gain major advantages in the marketplace: the dollar store might become the two dollar store, but Canadian Tire and Home Depot prices would drop, especially on non-toxic items that improve your home's air and water quality,
conserve energy, and let you raise good food.

Global taxes

The Global Greens have debated global taxes such as the Tobin Tax and carbon tax. Greens would seek global agreements to tax currency transactions, pollution, debt speculation, wealth gained from land speculation and ecological damage.

Property taxes

Canadian Greens, for instance, seek to use the leverage of federal gas tax money that now flows to municipalities, to ensure that municipal property tax is charged on land value, but not on building value, so you are never penalized for improving your home or business building. See land value tax for more on this.

Compassionate ecological deferral

For seniors living in their own rural homes, some Greens have proposed to achive yet another goal with a compassionate deferral: a portion of property taxes may be deferred for their lifetime in return for agreements to protect ecological value of their land (wetlands, old trees, and animal habitat and migration corridors). This natural capital protection has a value to others, so, it's reasonable to grant it a lower tax rate or deferral.

standard definitions

A standard definition of the Green tax shift useful for journalists, opposing political parties, right-wing lobby groups, and others who don't trust "Greens" to define it, is:

en: wikipedia: green tax shift

Canadian federal party positions


When voters compare 2006 Canadian federal party platforms, they will find at least the following attitudes to the green tax shift:
  • The NDP is against any cut in corporate taxes
  • The NDP is against any cut in personal taxes
  • The NDP proposes cuts to consumption tax for energy and certain processed non-local goods (diapers, tampons) that have become culturally necessary for those living high-consumption urban lives
  • The Conservatives propose to cut the GST to 5% on all goods and services
  • The Green Party of Canada proposes to cut GST to zero for "ecological goods" but keep the GST on services at 7%. This is not a green tax shift as it rewards moving goods over services (which by definition consume no material and the energy involved in food)
  • The Liberals have promised a green industrial strategy and tried to cut corporate taxes, and made small moves to adjust Capital Cost Allowances to reward sustainable infrastructure.


A purer position is revealed by those who compare 2004 federal party platforms instead: According to Greens during the Canadian federal election, 2004:

Green tax shifting has the potential to play a key role in laying the foundation for long-term sustainability in Canada. At its core, it means increasing levies (including taxes) on "bads", environmentally- and societally- damaging activities such as pollution and the use of scarce resources, and decreasing levies on "goods", environmentally- and societally- desirable activities such as employment, in a revenue-neutral or revenue-negative manner. The primary objective of green tax shifting is to thus shift the financial incentives and disincentives embodied in relative prices such that businesses and individuals will be more motivated to adjust their long-term behaviour to be more in harmony with environmental sustainability.

GPC 2004

The Green Party believes it is critical that the tax system be redesigned in order that it support and expedite the shift to a more environmentally-sustainable society.

In our current economic environment, companies and individuals largely "externalize" the health and environmental costs of pollution and waste on to society at large and future generations. A green tax shift (GTS) would move towards representing these costs in prices. Not only is this an incentive to advance sustainability, but it is more fair to those citizens and businesses who make environmentally-conscious decisions, and - from a pure economic perspective - it is more efficient by better representing the costs of waste and pollution within our economy.

Green tax shifting utilizes the great potential of the tax system to effect behaviour. The current Canadian tax system, expected to generate $158 billion in 2004-2005, has evolved with little apparent over-arching plan, driven largely by the desire for revenue generation and political expediency, and with little regard for behavioural effects. While economic theory suggests that taxes should influence behaviour as little as possible, the sheer scale of Canada's tax system dictates that it must have significant impacts on the choices of individuals and businesses in Canada.

At least nine European countries have implemented significant green tax shifts, beginning in 1990. Most of these shifts involved increases in energy- and transportation- related taxes, and decreases in income taxes or social security contributions, but often allowed so many exemptions to energy-intensive industries that the potential benefits were significantly reduced. While the effects of tax shifts will be more evident over the long term, initial indications from these efforts already suggest moderate environmental benefits.

The Green Party of Canada proposes a substantial energy-based green tax shift, to be phased in over a 10- to 15-year period. The GPC proposes a long-term goal of generating an additional 10% of current annual federal tax revenues from energy-related taxes and permit fees, creating a total energy-related tax revenue of $21 billion in 2004-2005 budget dollars.

Its revenue side would be based initially on a combination of auctioned greenhouse gas (GHG) emission permits (for those covered by the Large Final Emitters (LFE) system), at or above a specified minimum permit price, and a GHG emissions tax (for other emitters), at a rate equal to the minimum permit price, and would eventually include a broad differentiated energy tax covering all sources of energy in Canada. These differentiated taxes would be proportional to the environmental and social damage caused by the production and use of that energy source, as well as its resource scarcity value.

Revenue would be "recycled" back to society primarily to create a neutral tax burden for most Canadians, as well as to protect energy-intensive domestic businesses from competitive disadvantages internationally, and to further technological development in such areas as reducing emissions intensity, increasing energy efficiency, and advancing alternative energy sources. These funds would be primarily recycled back to society through a combination of lump-sum payments (similar to the GST refund system) and reductions in the marginal income tax rate for the lowest tax bracket.

The full implementation of this tax shift would require the eventual support of Canada's provincial governments, the implementation of comparable climate change policies in the United States, and an increase or removal of the government's $15/tonne cap on industry costs for GHG emissions.

This green tax shift would affect prices throughout the Canadian economy, as energy costs influence the price of almost all products and services, particularly through transportation and heating costs. It could thus lead to cleaner air and water, better health, better transportation access, and reduced GHG emissions across Canada. Equally importantly, it could lay the groundwork for internally-renewing long-term sustainability.

It would provide financial advantages to individuals and businesses making more environmentally-friendly choices, and similarly penalize companies and individuals operating in an environmentally-damaging fashion. It would reduce the cost of locally-made products and services, and increase that of those imported from farther away. Renewable energy producers would be more competitive with conventional carbon-based fuel sources. Greener transportation methods such as public transit, car-sharing, and cycling would all be more financially attractive. Yet it would also provide companies and individuals with 10-15 years over which to adjust to the full extent of the price changes, allowing them to incorporate the price shifts into their major purchasing and planning decisions.

While the average citizen would pay (and receive) taxes differently, their savings level would not be affected if they continued spending as before. This tax shift would allow workers to keep more of their paycheque initially, then choose whether to return more in taxes by frequently driving and buying pollution-intensive products, or to increasingly cycle and use public transit and then have more money left over for other priorities, such as funding increased vacation time. While home heating costs would rise, so would the benefits of conserving energy and building and renovating using energy-efficiency principles, thus creating numerous jobs in renovations and green building. Over time, due to lower personal income taxes, the costs of hiring employees should drop too, facilitating increased hiring.

Tax shifting, while an important step forward, will only be part of an effective strategy for sustainability in Canada. In contrast to more focused behaviour change initiatives, it would operate more in the background, particularly in the short-term, shifting pricing structures, and also advising of greater price changes to come. Simply beginning a broader discussion of tax shifting would, however, be an important step forward in itself, by creating the expectation that energy-related costs could increase significantly, and that greater competitive advantages will be available by further reducing one’s environmental damage to the planet. As it moves closer to adoption, such a tax shift policy initiative should further facilitate a heightened awareness and appreciation, amongst industry and individuals, of the value of the energy they consume, an effect that should be evident with the initial GHG emission levies, but more widespread once a broader energy tax was implemented. This heightened awareness, and differing energy cost expectations, would be particularly influential in major planning, production, purchasing, and renovation decisions, where the price changes would be more pivotal. As the results of these decisions became clear, so would the effects of the GTS become more evident.

This GTS proposal should be complemented by other more focused, micro-level policy measures, using both economic instruments and regulatory means. In particular, it would be critical to continue phasing out perverse subsidies, especially to nonrenewable energy sources. Governments should also continue to play a major role in facilitating new energy and technology development, as there can be a significant financial barrier for new low-impact energy sources to be initiated. Similarly, the government could reasonably act to motivate individuals to invest in such items as energy-efficient windows, insulation and light bulbs, which, while cost-efficient in the long-term, have upfront costs which present financial and psychological barriers to their purchase.

Canada could also catalyze further international advancements on the path to sustainability through adopting this type of tax shift. Canada’s actions could provide the courage and support necessary for other countries to enact similar changes, and thus facilitate the critical mass of support needed for adoption of such measures on a bi-lateral basis and then across the European Community and the OECD. This should include broad implementation of higher GHG-related costs, whether through taxes or permit fees, including such often exempt sectors as emissions-intensive industries and air travel, such that climate change-related policies would create a greater deterrent to GHG emissions, that all sectors would be treated more equally, and that there would be less pressure to rely on mechanisms such as border tax adjustments to protect domestic industry.