Greening the budget; a (too) high social price?

Analysis

Belgium has rather low environmental taxes. A radical fiscal greening could yield between € 3 and 5 billion per year, which allows a reduction of personal income taxes by 7 up to 11%. A fiscal greening will however increase income inequality because only the economically active will benefit from lower labor taxes. We estimate that an ambitious fiscal greening will cost up to € 690 per year for inactive households while economically active households will enjoy a net tax reduction between € 1 095 and     € 1 910 per year.
 
A fiscal greening can have a negative impact on the international competitiveness of energy-intense industries and will further enlarge the price-gap between Belgium and the neighboring countries. Both evolution pose serious economic risks. Lower taxes on labor are needed but cannot solely be financed by higher environmental taxes. Structural reforms to lower government expenditures are essential to facilitate lower labor taxes.