Dutch industry takes ‘green’ levies in its stride

Date: 18/02/1999

By Bruce Barnard

ALTHOUGH Dutch companies faced sharply higher eco-taxes from January, there were no howls of protest.

Even the fact that the increase signalled the start of a programme to double the tax take by 2001 failed to register on the corporate Richter scale.

Dutch industry's laid-back attitude reflects the fact that increases in so-called 'green' taxes will be offset by lower payroll levies as part of a major reform to prepare the tax system for the 21st century. The aim is simple: simultaneously to reduce pollution and increase employment. And if any country can match theory and practice, it is the consensus-driven Netherlands.

This famed consensus enabled employers and workers to agree unanimously last year on a raft of recommendations to the government for a major overhaul of the fiscal system, which involved the 'green'/labour tax trade-off as well as lower corporate and income taxes.

The Netherlands' decision to introduce an eco-tax in 1996 underlined its commitment to make good its pledges to clean up the environment. The coalition government of Prime Minister Wim Kok has promised to reduce carbon dioxide (CO2) emissions by 6&percent; by the year 2010 to honour undertakings given in the Kyoto accord on global emissions.

The eco-taxes have been fairly modest and cost companies much less than the fossil fuel taxes introduced in the 1970s in the wake of the first oil shock.

Large companies with energy-intensive operations such as steelmaker Hoogovens, chemical giants Akzo-Nobel, DSM and Dow Chemicals, and leading supermarket groups like Albert Heijn, typically pay between €18 million and €22.7 million a year in fossil fuel taxes.

Eco-taxes, by contrast, total only €450,000 €-900,000 per company because there is a relatively low cut-off level of energy use on which taxes are levied. Chemical companies pay around €118 million a year in fossil fuel taxes but only €4.5 million net in eco-taxes, according to Andre Romeyn, spokesman for VNCI, the Dutch chemical industry association.

But that is about to change as the eco-tax rate and the volumes affected progressively rise. “The tax is beginning to bite,” said Matthias Korten, tax specialist at VNO-NCW, the Confederation of Netherlands Industries and Employers. Large companies like Akzo and DSM with several subsidiaries could face annual bills of €2.2-3.4 million. “By 2001 they will be paying twice as much - possibly more,” he predicted.

The eco-tax is only part of the government's 'green' arsenal. Equally important are the 100 or so covenants: voluntary agreements between industrial sectors and the government to meet long-term environment targets.

The combination of taxes and covenants, which cover 90&percent; of industry, has produced significant results. Gross domestic product has surged by 45&percent; since 1980 but polluting emissions, with the exception of CO2, have fallen by between 30&percent; and 60&percent;.

Nor is there any evidence that the eco-tax has eroded Dutch industry's competitive edge or deterred foreign investment.

Quite the opposite, in fact. The Netherlands was ranked fourth behind the US, Singapore and Hong Kong in the 1998 World Competitiveness Year Book and has been tipped by The Economist Intelligence Unit as probably the best place to do business in the new millennium.

Dutch industry has shifted the focus of its lobbying efforts from The Hague, where “the battle is lost”, according to Korten, to Brussels, where the EU is slowly edging towards a minimum eco-tax.

Naturally, Dutch firms hope the level will be pitched close to that already applied in their country, but the issue does not appear at the top of their concerns.

The government in The Hague, however, is deadly serious. Willem Vermeend, state secretary at the finance ministry, has presented Union colleagues and officials with copies of his book Green Taxes in an effort to accelerate the debate.