Taxing the bad to pay for the good

| February 3, 2009
Carbon Economy

Amidst the financial and economic carnage of current times, Australia has actually been presented with an unprecedented opportunity.

When I do my personal tax or fill out a BAS statement the environment isn't usually top of mind. While paying our tax is an exercise in short-term financial pain for each of us, it's how we contribute to funding the long-term viability of our society.

But what if we could reform the whole tax system to work for the greener good? Not just discreet environmental taxes, but putting an environmental overlay across the whole system of taxation to make society better.

It's optimistic in the extreme, but not such a crazy idea.

For a start many experts still extol the straightforward virtues of a carbon tax, rather then the greater complexity of an emissions trading scheme, although Australia has opted for the latter in the shape of the forthcoming Carbon Pollution Reduction Scheme (CPRS).

There has long been accord between many economists and environmentalists on the idea of turning the taxation system on its head, so we move from taxing societal ‘goods' like employment and production to environmental ‘bads' like natural resource depletion, waste and pollution.

Politically, however, it's always been a road too hard.

Now, amidst the financial and economic carnage of current times, Australia has actually been presented with an unprecedented opportunity to look more deeply at taxing the bad to pay for the good.

Carbon EconomyA host of tax reform opportunities with relevance to climate change, the environment and sustainability are on the agenda of the major taxation system review being led by Treasury Secretary Dr. Ken Henry.

The Australia's Future Tax System (AFTS) review could set the agenda for the tax system for the next generation or longer. It took preliminary submissions in 2008 ahead of releasing its consultation paper last December, and is running its public and industry engagement processes in the first half of 2009.

Environmental issues were a key theme for respondents ranging from obvious suspects like major green groups, through industry associations and big corporations, to individual citizens.

So what are the tax reforms we can contemplate to ensure a cleaner, healthier and wealthier future? How can tax reform support the CPRS and align government revenue-raising with the transition to a low-carbon economy? Based on pre-submissions to the AFTS, some of the big ideas for this year include:

  • Accelerated 'green depreciation' for commercial buildings and equipment (a theme Opposition Leader Malcolm Turnbull has seized on already)
  • Full-cost recovery road-user charging for cars and trucks, fully or partly replacing the fuel excise system
  • Extensive 'sustainable retrofit' concessions for householders and businesses
  • Transforming Fringe Benefits Tax provisions for company cars and parking to drive green vehicle uptake
  • Unlocking major investment to enable key infrastructure such as energy system upgrades to connect renewable and low-carbon generation into the grid
  • Rethinking the pricing of the royalties or ‘rentals' we put on our nation's precious natural resources, and
  • The big one, a sweeping shift from taxing the 'goods' of labour and production to the 'bads' of consumption and waste

This makes the AFTS an historic opportunity for tax reform that factors in the environment, including as its does a clear focus on sustainability and action on climate change. The AFTS consultation paper says:

‘Australia faces significant environmental challenges in the 21st century, ranging from global issues, such as climate change, to local issues, such as water scarcity, land degradation and species loss.

‘Economic development must be undertaken in an environmentally sustainable way, while also recognising that the environment itself has value. Taxes may provide one means of improving environmental amenity. The tax-transfer system can also detract from environmental outcomes through the incentives it creates. Such incentives need to be carefully evaluated against other policy objectives.'

AFTS has been dubbed a ‘root and branch' review of the nation's taxation system, so hopefully it can extend to the green leafs as well. Without getting carried away, there are positive signs; certainly an apparent willingness to examine how the tax-transfers system impacts on the environment in critical areas such as transport, consumption, pollution reduction, and natural resources.

Over the next few months the Total Environment Centre's corporate sustainability arm, the Green Capital program, will be conducting a process to drive constructive dialogue on tax reform, aimed at securing better environmental and sustainability outcomes via specific recommendations.

By feeding into the official AFTS consultation process, Green Capital will be helping to build the case to reshape the taxation system for long-term sustainability in the 21st Century. Just as emissions trading will be a vital part of de-carbonising our economy, so will creating tax incentives for individuals, investors and corporations to be greener.

In the future, doing my tax may be transformed. Perhaps the BAS (Business Activity Statement) can become the GAS (Green Activity Statement).

Murray Hogarth is Senior Adviser to the Total Environment Centre's Green Capital program and a sustainability strategy consultant with leading public affairs firm Hawker Britton. A regular speaker, writer and media commentator on climate and sustainability issues, he is a former Sydney Morning Herald environment editor and is the author of The 3rd Degree: Frontline in Australia's Climate War, published by Pluto Australia in 2007. His recent papers include ‘The End of Greenwash', ‘The Green CRED Checklist' and ‘Crunch Time for Carbon Offsets', all published with the Green Capital program in 2008.

www.greencapital.org.au

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0 Comments

  1. sally.rose

    February 19, 2009 at 12:09 am

    tax is never a popular word

    The Centre for Independent Studies (CIS) and The Australia Institute (AI) are 2 major Australian think-tank organisations which don't always agree and they are both quite vocal on the benefits of a carbon tax over a carbon emmissions trading scheme. 

    I think you are right about it being a hard political road – in most voters minds the words carbon emmissions trading or carbon pollution reduction scheme are quite abstract – whereas carbon tax is tangible and has a negative tone.