Vulcan View: The latest EU developments 22 July – 26 July

New ecodesign for sustainable products rules enter into force

As of this week, new EU rules on ecodesign for sustainable products, setting out strict requirements and consumer information to almost all categories of physical goods have entered into force. The cornerstone of the Commission’s approach to more sustainable goods, it aims to significantly improve these products’ circularity, energy performance, and other environmental sustainability aspects. It will replace the existing Ecodesign Directive and is part of a package of measures to achieve the objectives of the 2020 Circular Economy Action Plan.

“Ecodesign” means integrating environmental considerations into each stage of product development. In a world where efficient and sustainable products are in such high demand, ecodesign is an effective way to reduce energy and resource consumption. The ESPR enables regulators to set performance and information conditions, or ‘ecodesign requirements’, for almost all categories of physical goods. To meet the regulations, a product can be labelled sustainable, if it:

• uses less energy,
• lasts longer,
• can be easily repaired,
• parts can be easily disassembled and put to further use,
• contains fewer substances of concern,
• can be easily recycled,
• contains more recycled content, and/or
• has a lower carbon and environmental footprint over its lifecycle.

Besides the ecodesign requirements, the ESPR also introduces the Digital Product Passport (DPP), a digital ID for products, components, and materials, which will store relevant sustainability information, promote their circularity, and strengthen legal compliance. The Passport will make it easier for consumers, manufacturers, and authorities to make more informed purchases. To extend the ESPR even further, it bans the destruction of unsold consumer products such as clothing and shoes. Finally, it helps steer the EU’s €1.8 trillion annual works, goods, and services purchases towards sustainable options through mandatory Green Public Procurement criteria.

As for the ESPR’s implementation, the concrete product rules will be decided progressively over time, on either a product-by-product or group basis. These decisions will be made in an Ecodesign Forum, which will allow for inclusive planning, detailed impact assessments, and regular stakeholder consultation.

The Ecodesign for Sustainable Products Regulation (ESPR) offers a significant opportunity to boost the market for environmentally friendly products, encouraging companies to prioritise sustainability. Building on the achievements of past ecodesign initiatives, which led to €120 billion in energy savings for EU consumers and a 10% decrease in annual energy consumption in 2021, the ESPR seeks to provide further advantages for businesses, consumers, and the environment. Through this new legislation, the EU reaffirms its dedication to promoting a more sustainable and circular economy.

European Commission adopts 2024 Rule of Law Report

The EU’s 2024 Rule of Law report was published on Wednesday (24 July) and presents both a synthesis of both the rule of law situation in the EU and an assessment of the situation in each Member State and enlargement countries.

The Report examines developments across all Member States in regard to four key areas: the justice system, the anti-corruption framework, media pluralism and freedom, and other institutional issues related to checks and balances. There are chapters for each of the 27 Member States which consist of the results from a qualitative assessment carried out by the Commission.

Changes are examined from the 2023 report to show progress, provide new recommendations to guide ongoing reforms and identify areas needing improvement. The 2024 report has added chapters for the following four enlargement countries: Albania, Montenegro, North Macedonia, and Serbia. The inclusion aims to provide support reforms in democracy and the rule of law ahead of their EU accession.

The report consists of dialogue with national authorities and consultations with various stakeholders across the EU and upholds a political responsibility for its assessments and recommendations. All Member States were also invited to provide any information on significant developments since the adoption of the 2023 report. The Council of Europe contributed by providing an overview of its recent opinions and reports.

Von der Leyen’s political guidelines for the 2024-2029 European Commission emphasise the rule of law as central to the EU’s success. In the report, Von der Leyen states, “A Europe that protects must also stand up for justice and for values. Nowhere is this more important than when it comes to the respect of the rule of law.”

The Rule of Law report will drive this work forward, embracing issues such as the Single Market dimension and highlighting recommendations and funding under the EU budget.

The EU’s 2024 Rule of Law report highlights the progress and challenges within Member States and enlargement countries in key areas such as justice, media and freedom. By including new recommendations and examining recent developments, the report aims to support ongoing reforms and democratic progress. The report aligns with von der Leyen’s political priorities, highlighting how the rule of law is essential to the EU’s success.

Tax Strategy Group recommends widening tax band

This week, the Tax Strategy Group (TSG) published their Budget 2025 papers which depicted various options for tax policy changes. These papers are prepared annually by Department of Finance officials to produce a list of options and issues to be considered in the Budgetary process. This year’s meeting of the TSG was held on the 9 July 2024.

The report serves as a guide to the newly elected Minister for Finance Jack Chambers, as he considers terms for the upcoming October budget for 2025. A package of €1.4 billion has been allocated which will ensure that the Government has the capacity to adjust tax credits and bands to ensure workers do not pay a higher rate of tax as a consequence ofhigher wages.

Minister Chambers has promised to protect wage growth – which was 4.5% last year, which will result in widening the standard income tax band significantly. The TSG paper finds that if the income tax system, (which consists of both universal and non-universal tax credits, standard rate bands, USC bands and age exemption limits) were to account for a 4.5% increase in wages, the cost for the first year would rise to €1.015 billion. This would further increase to €1.17 billion in a full year.

The report also details how more than 40% of all income tax and USC receipts generated in the State come from those working for the multinational sector, both Irish and foreign-owned. Others, including public sector employees and the self-employed, account for around 40% of total receipts.

According to the report, the top 1% of taxpayers are now paying almost 24% of all income tax and over 28% of the Universal Social Charge. Citizens earning less than €69,000 a year, which is the bottom 80pc of income earners, are paying 21% of all income tax and USC.

There is an implication of an imbalanced tax bracket within the report, where too few people are paying too much tax, and that in order for this to be rectified completely, the tax band would have to be broadened to reduce the dependence on higher earners. This is a challenge to Finance Minister Jack Chambers as he prepares the 2025 Budget.

The report also reveals that 7% of all “taxpayer units”, individuals and jointly assessed couples, will be exempt from income tax this year. While 64% will pay the standard rate of income tax, one million of these 2.2 million “units” will find that their income tax liability is ­“fully covered by their tax credits”.

In regard to the USC, it is estimated that in the upcoming tax allowance, 37% of all taxpayer units will be exempt from USC, which includes part-time workers earning less than €13,000 per annum, persons in receipt of small occupational pensions of less than €13,000 per annum, and taxpayers in receipt of State Pension income only; 33% of all taxpayer units will pay a maximum rate of USC of 4%, which is taxpayers earning up to €70,044; and 11% of taxpayer units will pay the top rates of USC, which is those earning over €70,044. It is predicted that revenues source will go up by €1.9bn, or over 5%, this year.

There was also a recommendation to make filing a tax return on any inheritance gift mandatory, no matter the amount or size and increasing betting tax.

Budget 2025 will be unveiled on 1 October 2024.

For more information, please contact the Vulcan team here.

Compliments of Vulcan Consulting – a member of the EACCNY.