Selective taxation can have unintended consequences

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DISCRIMINATORY TAXES HAVE UNINTENDED CONSEQUENCES

UNINTENDED ECONOMIC CONSEQUENCES OF SELECTIVE TAXATION

Discriminatory taxes can often have unintended negative economic consequences:

Job losses are often a near-term effect of discriminatory taxes, resulting in not only lower consumer spending, but also in lower tax revenue from individuals that compound these losses. For example, since the introduction of a discriminatory beverage tax in Mexico in 2014, more than 10,000 jobs have been lost and 30,000 ‘mom-and-pop’ stores (small, family-owned, independent stores) closed down due in part to the tax.

The effects of taxes on employment are also widely acknowledged. There are large numbers of local small and medium-sized enterprises that manufacturers work with, mostly active in bottling, packaging, advertising and retail. Therefore, food taxes may have a direct effect on local employment, and throughout the entire value chain.

Discriminatory taxes can also have a negative economic impact associated with border trade. Countries that have introduced excises on soft drinks and/or other consumer goods have experienced a massive increase in border shopping in adjacent countries with no tax¹. Denmark provides a compelling example, where the trans-border trade was so great that the soft drink tax was repealed in 2014, citing more than kr290 million (some €39 million) in lost revenue, due to illegal soft drink sales and people crossing the border to buy cheaper soft drinks.

Finally, discriminatory taxes disproportionately affect the poor, placing a greater burden on those with smaller incomes. It is well-established that taxation of foods and beverages hurt those who can least afford it the most. A 2019 British Medical Journal editorial acknowledged the regressive nature of such taxation, stating that “taxes on food and beverages are regressive because families on lower incomes who spend a higher percentage of their income on food will be disproportionately affected.”

¹ Report from the Boston Consulting Group (BCC) in Copenhagen

Current water challenges

We cannot deny the current water challenges our world is facing. We are experiencing increased water scarcity, with demands for safe, usable water exceeding supply in many areas, including in Europe.

Freshwater use has been growing by about 1% per year since the 1980s and as water demand is expected to continue increasing at a similar rate until 2050, this will account for an increase of 20 to 30% above the current level of water use¹.
This increase in water demand is leading to a reduction of renewable water resources of 24% per capita in Europe².

Around 30% of the European population lives in areas with permanent water stress and up to 70% live in areas with seasonal water stress during summer³.
Europe’s aquatic ecosystems are severely degraded: only 17% of protected river, lake, alluvial, and riparian habitats are in good conservation status and 90% of protected wetland habitats are classified as poor or bad⁴.
Globally, 85% of wetlands have been lost in the last 300 years, with more than 50% lost since 1990⁵. This is particularly critical as wetlands play an important role in filtering water and removing pollutants, as well as providing shelter to wildlife and capturing carbon.

This situation entails severe risks for the world’s population.

For the last decade, the World Economic Forum has placed water-related risks among the world’s top five in its annual Global Risks Report.
Water-related disasters have also dominated the list of disasters over the past 50 years and account for 70% of all deaths related to natural disasters⁶.
Nearly 95% of infrastructure loss and damage reported between 2010 to 2019 were due to water-related disasters⁷.
More frequent and intensive flooding has cost lives and livelihoods across Europe, while at the same time, more than 50% of the continent has, in recent years, been affected by extreme drought conditions, which also breed a range of negative social, economic and human outcomes⁸.

A situation driven by a combination of factors

The deterioration of the natural water cycle stems from a confluence of factors: growing urbanisation, growing populations, increased consumption, poor management, pollution, lack of or damaged infrastructure, and climate change.

Agriculture was responsible for 59% of total freshwater use in Europe in 2017⁹, while industrial and domestic uses are the main drivers of increasing water demand. Indeed, as economies industrialise, populations urbanise and water supply and sanitation systems expand.

Additionally, rising temperatures and more extreme weather patterns are causing more droughts and flooding. Climate variability is also bringing more uncertainty as to the availability, predictability and geographical distribution of water. Water and climate change are inextricably linked. From unpredictable rainfall patterns to shrinking ice sheets, rising sea levels, floods and droughts – most impacts of climate change come down to water (UN Water).

¹ Chart of Global Fresh Water Use 1901-2014 – The Global Education Project

² Water use in Europe — Quantity and quality face big challenges — European Environment Agency (europa.eu)Chart of Global Fresh Water Use 1901-2014 – The Global Education Project

³ Water stress is a major and growing concern in Europe — European Environment Agency (europa.eu)

⁴ Europe’s state of water 2024: the need for improved water resilience | European Environment Agency’s home page (europa.eu)Water stress is a major and growing concern in Europe — European Environment Agency (europa.eu)

⁵ Innovative Solutions Needed for Wetlands in Crisis – SDG Knowledge Hub (iisd.org)

⁶ Water Resources Management Overview: Development news, research, data | World Bank Innovative Solutions Needed for Wetlands in Crisis – SDG Knowledge Hub (iisd.org)

⁷ Water risks and resilience (undrr.org)

⁸ Risks and solutions: how climate change is impacting our water and health | European Environment Agency’s home page (europa.eu)

⁹ Water scarcity conditions in Europe (Water exploitation index plus) | European Environment Agency’s home page (europa.eu)Risks and solutions: how climate change is impacting our water and health | European Environment Agency’s home page (europa.eu)