In the face of escalating global climate issues, environmental and cost-of-living crises, as well as the context of constantly deepening social inequalities, the European Union (EU) governments stand at a crossroads. As environmental and climate organisations call for bold actions and adequate finances to address pressing challenges, one proposal emerges as a beacon of hope: an EU wealth tax. The European Environmental Bureau (EEB), together with the Climate Action Network (CAN) Europe and the European Youth Forum have recently held a webinar to hear more about such a tax. Building on the outcomes of the webinar, this article explores the feasibility of a wealth tax – not only to tackle the challenges of the climate crisis but also address systemic social injustices within the EU to foster a just transition quicker and more effectively.
Understanding the Wealth Tax
A wealth tax is a tax that is imposed on the accumulated assets and wealth of individuals, including cash, insurance assets, real estate, businesses and personal trusts. Unlike income taxes that focus on a person’s earnings, a wealth tax aims to redistribute resources by taxing the overall value of one’s possessions, including property, investments, and savings. Such an approach ensures that people with substantial wealth contribute their fair share to society’s collective needs.
In light of the significant financial means needed to respond to the challenges of the climate crisis and other relevant problems, a wealth tax for the whole of the EU could be a powerful tool to facilitate a just transition and promote greater social justice and cohesion. When designed in progressive way and accompanied by additional measures to avoid capital flight and tax abuse (such a Global Asset register to increase transparancy of the ownership of assets, financial transaction tax etc.) it can foster a more equal distribution of resources and opportunities within societies. In addition to that, with taxes on accumulated wealth, the EU Member States can generate new revenue streams to fund essential public services that would include healthcare, education and infrastructure, as well as closing the green funding gap.
Tackling the Climate Crisis
In today’s reality, the urgency of addressing the climate crisis can hardly be overestimated. Rising global temperatures, extreme weather events and the growing rates of ecological degradation have the capacity to shake the very foundations of life on Earth. In this light, the EU wealth tax offers a promising pathway towards climate justice by mobilising resources that can be used to fund various sustainable initiatives. For instance, revenue generated from this tax could be channelled into renewable energy projects, climate adaptation and mitigation efforts, as well as essential public services – affordable housing, food and green and public transportation. By investing in targeted green and welfare initiatives, the EU states can accelerate a more rapid transition to the low-carbon future, all the while safeguarding vulnerable communities from the impacts of climate change and ensuring that everyone has access to essential resources.
In addition to its environmental benefits, the EU wealth tax has significant implications for social justice. Across the EU, disparities in wealth and income have widened in recent years, especially since the onset of the covid-19 pandemic, further exacerbating social divisions and marginalising vulnerable populations who continue to struggle with access to key resources. For instance, since 2020 five of the richest billionaires in the EU have increased their wealth by staggering 76%, from 244 to 429 billion euros, whereas most of the population has become poorer.
The EU wealth tax can facilitate redistributing wealth through progressive taxation, can help to reduce inequalities and distribute wealth more equally in our societies. From a climate justice perspective, these actions also appear to be justified, given the ultra-wealthy have disproportionately contributed to the climate crises. For example, according to a report by Oxfam, the wealthiest 1% of the global population are responsible for more carbon emissions than the total 66% of the poorest population. Such dynamics not only increasingly threaten vulnerable communities but also clearly undermine the global efforts to combat the climate crisis.
A Vision for the Future
What could an EU wealth tax look like in practice? Though the specifics of such regulations would require careful deliberation and collaboration among the EU member states, a progressive wealth tax system targeting the super-rich could generate significant numbers of revenues. Different studies (see e.g. a study commissioned by the Greens, FEPS study, Saez, Zucman & Landais) conclude that an EU wide wealth tax could generate anywhere from €230 billion to €505 billion annually. These numbers are significant. For example, €350 billion is the same that the EU is currently handing out as grants to Member States over 10 years.
However, strong enforcement mechanisms and measures that would prevent tax evasion are essential to implement to ensure the effectiveness and fairness of the new system. A Wealth tax is also nothing new. The practice of a wealth tax had been in place in some countries in the past, such as Denmark, Germany and Finland. In 2022, Spain, has reintroduced a “solidarity wealth tax” on individuals with net assets exceeding €3 million. While the Spanish tax is often criticised for not being ambitious enough, it is undoubtedly a first step in the right direction.
Call to action
It makes sense for environmental NGOs and the environmental movement in Europe to support the EU-wide wealth tax. If designed in a progressive and transformative manner, the wealth tax can provide additional crucial resources to combat the climate crisis, promote fairness, as well as advance social justice within the EU borders and beyond.
One concrete first step is to support the European Citizen initiative for an EU wealth tax initiated by a group of politicians, activists, experts and business owners. The “Tax the Rich” campaign seeks to push the European Commission to introduce a European tax on excess wealth and redirect the resources to fund environmental initiatives. Read more about the initiative here.
