Swiss voters have rejected a proposed “CO2 tax” that would increase taxation on fuel and flights.
Switzerland’s Environment Minister Simonetta Sommaruga insisted that alternative policies would need to be devised. “”Climate change is still urgent, which is why we must move forward and find a way forward very quickly,” Sommaruga said.
Why were Swiss voters deciding tax policy, anyway?
Switzerland’s brand of direct democracy involves an unusual number of referendums on specific policy proposals. Swiss facultative referendums enable voters to effectively veto federal and local laws.
Any federal law can be subject to a referendum if opponents of the law can organise enough valid signatures when the law is published.
VAT as a green policy tool
Policymakers and analysts increasingly see VAT as a potential weapon in the fight against climate change. Green VAT policy can take two forms. You can increase VAT on energy-inefficient goods. And commensurately, you can cut VAT on ‘green’ materials and products.
In the UK, for instance, a parliamentary committee recommended reducing VAT on products and technologies that improve energy efficiency in homes.
The UK government has set a target of net zero emission by 2050.
Similarly, Rwanda enhanced its already ambitious environmental tax framework recently, exempting electric cars from import duties.
On the other side of the coin, some EU leaders have called for an end to VAT exemptions on fuel and increased VAT on airline tickets.
When cutting VAT is a public good
Beyond (admittedly urgent) environmental concerns, there are numerous potential applications for adjusting VAT rates to improve public outcomes.
For instance, during the Covid downturn, many governments reduced the VAT rate on the hospitality sector. The move was sensible, given the hard knock to hospitality and tourism.
But what other measures can authorities potentially take? For instance, zero rating VAT on exercise and fitness services would arguably stimulate small businesses and improve people’s mental and physical well-being.
Perhaps it’s therefore time to think of VAT policy in more nuanced and finegrained terms?
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