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Greens Eco-Tax: Part I - The Sweetener

[This is part one of a three part post on the Greens Eco-Tax Policy]
Back in April 2001, the Greens released their Eco-Tax policy. What is it all about, and if it were implemented, what are the implications? Firstly, what is Eco-Tax?

Ecological tax reform is a simple idea: shift taxes off work and enterprise, and onto waste, pollution and scarce resources. Those who waste and those who pollute, pay more.

The Greens issue a one page policy brochure designed to get every-one comfortable that their recommendations are fairly reasonable. Let's start with the sweetener:

$15 per week extra in the hand...The income tax cuts well outweigh the effect of the proposed Eco-Taxes on low-income households.

Now there is an interesting promise. Income tax cuts. And they are promised to "outweigh the effect" of Eco-Taxes on the low-income households. At first, they simply promise an extra $15 a week in the hand, which is an unfair expectation to set if Eco-Taxes drive prices up. Anyway, exactly how will they do this?

the first $5,000 of income would be tax free

Currently, the income tax rate on the first $5,000 is 19.5%. This equates to taking $975pa less from all tax payers. Granted, this is a good way of providing an across the board tax cut that will benefit all tax payers equally.

Having a tax free threshold is common to several countries; Australia for instance exempts the first $6,000. But it is also where I find the first problem. This tells me they are either only planning Eco-Tax up to $975 per tax payer, or that I'm not hearing the full story. It also implies they estimate the pollution tax to be about one billion dollars (the estimated value of $975 per tax payer). Not only that, this is a three year plan - apparently the AGW crisis is not as urgent as we thought:

We will remove all income tax on the first $5000 of income, for everyone. We will do this in three stages over the next three years.

So, their Eco-Tax policy is going to send a clear signal to reduce pollution, because over the next three years, they'd phase in up to one billion in income tax cuts to charge around 1 billion in Eco-Tax?

This doesn't sound like planning to prevent the imminent demise of the world. If we are to take the Greens seriously, I think they need to advance serious policy. Yet they kick off the debate with a sweetener of $975 as the cost offset required to save the world. Provided in installments over three years.

So what impact do they expect to make with this offset? Initially, they want to do two things:

Firstly, a diesel tax to make "users pay their fair share". This means an increase of at least 18.7 cents per litre to raise revenue (their estimates) of $300 million dollars. This will obviously impact freight, the SUV market, the government's new BMW fleet and bus fares. I'm going to assume that they have another policy elsewhere that will subsidize public transport to absorb the diesel increases.

Secondly, the Greens will raise around $300m per year through a low-level carbon charge of $10/tonne of CO2. This was the figure offered in their brochure. They bandy about a working suggestion of $25/tonne by way of example in their actual policy document.

Hang-on, I thought the CO2 output for NZ is around 75 million tonnes? (Can anyone help with these figures?) That translates to $750 million dollars, not 300 million dollars. Will the tax "off-set" be enough? Maybe they had a particular sector in mind with this estimate? So who actually pays this? What products will bear the tax? I don't think their Eco-Tax document was crystal clear on this, and I really think they need to update this area as it relates to their "three year phase in" offer on their brochure.

Another area they need to quantify is how much they plan to increase rates, and what that offset will do in curbing emissions (and bankrupting businesses). For example, their Eco-tax policy document details EU members that raise various Eco-Taxes with a 10-15% surcharge results in roughly a 2-5% decrease in CO2 emissions.

But is a 2-5% reduction in CO2 emissions going to save us from the multi-billion dollar expense of Kyoto and keep the Green's satisfied? Surely, we are talking price increases of 50% to 100% to even 200% to modify behaviour and have the desired impact? This is not made clear in their one page glossy. In their Eco-Tax document, there seems to be nothing on stating the exact results they wish to achieve either. There are hints as to what the government should do, by way of comparison:

A similar survey of Western European nations suggested that in order to cover just externalities costs, fuel taxes should on average be increased as follows:

Car petrol: +0.83/l ECU (NZ$1.77)

Car diesel: +1.04/l ECU (NZ$2.21)

Truck diesel: +0.74/l ECU (NZ$1.57)


They go on to say that it would be even higher figures for NZ to properly cost in these "externalities costs". What tax free threshold are we really talking about? Or does all of this happen further down the track, once Eco-Tax has been accepted in principle?

Of course, their policy document goes deeper than this. So I've divided up the policy into sections for discussion.

This is the first section - "The Sweetener" - their feel-good policy brochure that introduces a few concepts and claims to offset the costs against adjusting the income tax threshold.

The second section discusses a subset of the Eco-Tax policies they aim to push through on the basis of saving the environment.

The third section will look at the remaining policies and tries to work out how effective the policies will actually be.

What's my angle on all of this? Firstly, I think their Eco-tax policy document is actually quite skimpy. They have this to say about that:

For the purpose of advancing environmental tax reform in New Zealand, there is no need to develop a comprehensive set of justifications at this stage. [pg 10]

Well, given that the environment is going to be a major plank of the Labour Party (after doing nothing for the last 8 years) it is likely that the Green's will be able to use the current political climate to push their Green Agenda on Labour. So we need some detail guys. I realise the justification is simply "AGW", but we need the policy detail, and their expectations (targets) of the results for the rates.

Secondly, I wonder how effective their policies would actually be to make a difference. Ideologically, I often disagree with the kinds of solutions the Greens put forward. But I'm willing to discuss them and thrash them out. There are a few ideas I'm interested in, but I figure, if you are going to do something, then do it well. Their $975 sweetener is either deliberately deceptive, stupidly pathetic, or the actual full scope and likely implementation poorly explained. The document is 6 years old. Time for an update, because they might find more people than ever are interested in it. I'm interested in keeping them honest and on their toes.

Finally, if interest in the thread is significant, then I'll throw out some suggestions provided in the threads, plus my own personal ideas, in what our environmental policy could look like.

Related Links:
* The Green's Eco-Tax Reform Policy Overview
* The Green's Ecological Tax Reform Policy Submission [PDF]
* Greens Eco-Tax Policy: Part II - It's about the environment
* Greens Eco-Tax Policy: Part III - Bad Tax

Update 2008: It seems the old submission documents are no longer available, so the links don't work. I will look for alternate copies. However, I have located a Greens Business Tax Review (Sep 2006) that may update some of this information, and I'll review this soon (Perhaps end of Jan 2008)

From the Sir Humphrey's Archives - 07 Jan 2007 (One year ago today, with minor edits)

Comments

  1. "Currently, the income tax rate on the first $5,000 is 19.5%."

    Good grief, no wonder so many Kiwis are fleeing NZ.

    "But I'm willing to discuss them and thrash them out."

    Big mistake Zen, it'll give them an undeserved legitimacy and only encourage them.

    "I'm interested in keeping them honest and on their toes."

    Good luck with that, i fear Zen the mad-left will never forgive you folks for earning and even worse, being allowed to keep some of your money.

    ReplyDelete
  2. Ah, you are a brave man for reading this long boring post. Even splitting it into 3 parts didn't make it much easier to digest.

    I'm expecting them to completely update their policies in this election year anyway, as there have been so many changes, new and revised figures, and new information.

    So these posts may prove to be irrelevant, unfortunately. But on the plus side, it may help me decipher any new policy.

    ReplyDelete

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