Covid Recovery – New EU Taxes to Repay Recovery Fund

Aimee Jones reports on how EU member states have responded to three new taxes to help repay funds borrowed during the Covid-19 pandemic and whether they are efficient enough.

Photo by Gayatri Malhotra

Covid-19 was at the forefront of our day-to-day lives. The events of recent years have caused governments worldwide to be in desperate need of funds to help support the country throughout the pandemic.

Sufficient funds were required for the furlough schemes, grants for struggling businesses, and to support the Covid-19 vaccination research and distribution program. However, now that things are slowly returning to a state of normality, governments are assessing how they can repay the €800 billion euros that was borrowed during the pandemic. The European Commission have proposed three new taxes in order to help repay these collective debts.

The Taxes

The first tax to be introduced is a legal seizure under a brand-new carbon market. They will continue to use the European Union's existing trading system for carbon in order to help them impose CO2 costs on ships and increase the payments that come from various airlines. This came under scrutiny from some member states, such as Poland, who state that by increasing the carbon prices, household bills will also increase. Despite these claims, it is estimated that the pros, outweigh the cons, as this new tax is estimated to provide 12 billion euros on average each year from 2026 to 2030.

The second proposed tax was to impose carbon costs on the importation of goods from countries that have weaker CO2 emission standards. From this tax, three-quarters of the money will go towards the EU budget and is estimated to provide 1 billion euros per year. This strategy is a key aspect of preventing businesses from transferring production outside of the EU, to countries with more laid-back climate rules, often referred to as carbon “leakage”, which may have a disproportionate impact on developing countries.

As a result of carbon leakage, some countries may refuse to accept these proposed tax changes. It is possible to make things more evenly distributed, for example, the CAMB could impose tariffs or taxes on the imports of such products (iron, steel, cement, aluminium, electricity and fertilisers) rather than being used as a protectionist measure which will keep such goods out of developing countries in particular.

The last new tax to be proposed is to give 15% of residual profits from multinational companies to the EU Covid-19 recovery fund. Residual profits refer to any profits that are left after the company has paid all of its capitol bills. This could potentially offer between 2.5 billion euros to 4 billion euros per year.

What Happens Next?

The first steps toward this new tax proposal were made earlier in 2021. It was expected that all 27 member states would agree with one another regarding the finer details of the proposal within the first 6 months, although some capitals had some concerns. Countries, such as Hungry and Estonia, voiced their concerns around the new percentage for corporate taxes. All countries have various levels of funds available to them, with some far better off than others. Paolo Gentiloni, a commissioner for the economy, explained that this was not replacing tax competition. Instead, Gentiloni stated that each country would still have different levels of corporation taxation, which was to be seen as a ‘ceiling, a limit, to the race to the bottom.’

It is understandable that changes need to take place in order to help repay the borrowed Covid-19 funds. But are these changes sufficient? Currently, the total amount owed by member states is approximately €800 billion euros, which is estimated to be fully repaid by 2058. Therefore, it is clear that more efficient taxation on importation, carbon leakage, and multinational companies must be implemented soon so that the financial damage of the pandemic can remain in the past. Similar: European Union Fails To Take Climate Emergency Seriously

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