The Ecological Tax Reform: Introduction, Continuation and Further Development to an Ecological Financial Reform

Summary

With its ecological tax reform, the German Government's is aiming to encourage energy saving and efficient energy use, and to promote renewable energies. These pillars of the new direction in energy policy – together with the phase-out of nuclear power – are crucial for climate protection and for creating new jobs. Following the introduction of the ecological tax reform in 1999, the decision was taken to continue the reform until at least 2003. Furthermore, the Act on the Further Development of the Ecological Tax Reform entered into force in 2003, and the expansion to an ecological financial reform was initiated.

Fossil energies are scarce and limited. The prices for their use are too low in the long term because they only reflect a share of their “true” costs. Consequently they offer too little incentive to exhaust existing energy saving potential, to further expand renewable energies and to develop and use energy-saving products and production processes. In contrast, employers and employees are burdened with excessive non-wage costs, in particular social insurance contributions. This has a negative impact on Germany's competitiveness and contributes to the relatively high unemployment.

The tax burden on the labour factor is therefore being reduced and shifted to the environmental consumption factor. In this way two problems can be tackled at the same time. Energy taxes are being introduced or increased in small, calculable stages and pension contributions are being reduced and stabilised.