Fiscal Policy

CEP’s fiscal policy program seeks to strengthen the alignment between fiscal policy and a broad sustainability agenda – with a particular focus on tax expenditures and their impact on job creation, innovation, inequality, and environmental resilience.

Tax expenditures (TEs) – benefits granted through preferential tax treatment such as exemptions, deductions, credits, deferrals and other measures – are costly, used widely by governments worldwide, and often opaque. In the United States, the federal government is estimated to have foregone 1.4 trillion US$ through 167 TEs in 2016. TEs in the UK amounted to 117 billion GBP in 2015 – excluding 1 billion GBP in “minor reliefs” and 218 reliefs for which figures are not available. In Australia, the largest 25 TEs in 2015 added up to more than 131 billion AUD or 9% of GDP.

Country disclosure on TEs is based on very heterogeneous standards with respect to both quality and scope of the data provided. In the EU, only 19 Member States were reporting on a regular basis on TEs as of 2014, with practices varying widely in terms of presentation, depth and coverage. In France, the budget appendix dedicated to TEs explicitly acknowledges that 237 TEs out of 470 cannot be quantified, or only a rough order of magnitude can be given. Switzerland published its last report on federal TEs in 2011 – largely based on extrapolated data from one single canton in 2005. Australia is another case in point. Estimates for 48% of all TEs (140/290) were not available in the country’s Tax Expenditures Statement 2015. As a result, TEs are hardly ever subject to sound cost-benefit analyses and new tax benefits are being introduced regularly without adequate scrutiny.

TEs are also often ineffective in reaching their stated goals, and frequently trigger negative side effects. The regressive nature of mortgage interest deduction schemes or tax benefits in the context of pension savings are cases in point. A myriad of environmentally harmful TEs for the production and consumption of fossil fuel provides further illustrations.

Against this background, CEP seeks to build an international coalition of policymakers, opinion leaders and researchers to strengthen the alignment between TEs and a broad sustainability agenda. For further information please contact . Please also check out the articles relating to fiscal policy in our blog.