Fiscal policy has always managed to influence consumer behaviour. In one of my recent articles, I write about the dual role of tax policy, that of having a balancing role to increase a country’s revenue and at the same time incentivising investment into the country. Although I speak about a ‘balancing role’, these two goals go hand in hand. As a country becomes more competitive from a fiscal perspective, it should be able to attract more investment, whether from internal or external sources, and hence increase government revenue. Naturally, fiscal policy alone cannot achieve this – the country’s fiscal policy has to be one of the many elements which compose the country’s long term economic vision of achieving this balance.

Apart from the impact on government revenues, fiscal policy has the power to influence consumer behaviour. More importantly, it has the power to influence the behaviour of large corporations.

We have seen countries introduce taxes to deter consumers from buying sugar-based products, we have seen tax incentives introduced to attract students and the work force to industries which were the priority of certain countries. Taxation has always been used as a means to influence behaviour towards achieving the long term, economic vision of the country introducing such measures.

Fiscal policy has a clear role to play in achieving the environmental sustainability and goals, currently being discussed at COP26 in Glasgow.

We have heard a lot about ‘green’ and ‘ecological’ taxation, particularly in recent years as the fight against climate change has become a priority of most countries and as citizens continue to push their leaders to take imminent and drastic action against the oil and gas industries. But what are these ‘green’ and ‘eco’ taxes?

Green and eco taxes are similar in nature and are often used interchangeably. The European Commission and OCED define ‘environmental taxes’ as "those whose tax base consists of a physical unit (or similar) of some material that has a negative, verified and specific impact on the environment.” A ‘green tax’ is introduced to make polluters pay in accordance with the ‘polluter pays’ principle, thereby deterring such behaviour, and shifting from oil and gas to more sustainable and environmentally friendly alternatives.

We all have a role to play in the fight against climate change, however tax policy has the possibility of influencing the behaviour of millions of consumers and, more importantly, companies, to achieve the desired goal of carbon neutrality.

November 2021

Nicky Gouder is a co-founding partner of Seed, an internationally focused research-driven advisory firm based out of Europe (Malta) and the Middle East.

www.seedconsultancy.com | nicky@seedconsultancy.com