EU Communication on environmental taxes and charges states: "4. Revenues from environmental taxes and charges can be used to finance environmental protection activities. In some cases, these instruments can also provide large and stable revenues. They can then be used to decrease other taxes which are perceived as distorting the economy, such as labor taxes".
Considering the extensive set of environmental charges and still numerous subsidies in different economic sectors the possibility of such eco-tax reform may be present in CEECs. The Slovenian CO2 tax can be seen as one step in that direction. There are some very preliminary discussions along that line in Hungary.
Present reality, however, likely limits the scope for eco tax reform in the region. Overall tax burden is high but so is tax evasion. Therefore predicting the impact of reducing labor tax rates is very difficult. There are only few environmental charges in the region which raise enough revenue to be seriously considered for a revenue switch. Earmarking is also incompatible with the eco-tax shift. Careful preparatory steps, including detailed analysis, are most likely to happen in short term. Depending on their results, some new instruments, particularly in the field of energy taxes, could emerge in longer run.
Cost recovery pricing for publicly provided services is a difficult political issue. Establishment of basic wastewater collection infrastructure was heavily subsidized in many EU countries, and then there was a gradual movement toward full cost recovery pricing. CEECs must also develop a feasible longer term financing strategy for developing their municipal waste water and waste management infrastructure.
The households' willingness to pay for such services is generally described as low. This is certainly not true for all components of the services in all areas. Decentralizations of these services have many advantages but it can also create efficiency problems. Economies of scale can not be exploited if each small municipality is required to have their own waste disposal site or waste water treatment plant.
There are several models for public-private partnership for providing waste water and waste management services. The key element in any of these is the commitment to proper pricing. It is rather difficult to collect information on user charges for a regional survey. The little information gathered suggests that user charges have been established in most countries. Their level, however, is not high enough to cover the full cost.