Tax Working Group chairman Michael Cullen is signalling environmental taxes are on the agenda. EY’s David Snell welcomes this and says it could be a way to change people's behaviour

The Chairman of the Group tasked with shaking up New Zealand’s tax landscape has been praised for signalling his intent to recommend new environmental taxes.

In a speech last week, former Finance Minister Michael Cullen made clear some form, or forms, of an environmental tax are on the Tax Working Group’s agenda.

Cullen said the effects of global warming are evident and New Zealand faces “a number of environmental challenges,” including water pollution, plastic pollution and overallocation of water.

“All this means that the possible use of the system to change people’s behaviour in ways which increase the wellbeing of all of us is very much on the agenda at the present time.”

Of all the taxes he said the group would consider in the speech, his comments about an environment tax were the most pointed.

'He's right'

EY executive director, and tax expert, David Snell says Cullen was absolutely right to put such an emphasis in this area and the time is right for an environmental tax to be examined.

“You can’t overstate the role of technological change and data in the way tax systems work now.”

He says using artificial intelligence and robotics, which can gather a staggering amount of data, gives a much stronger case of re-examining the existing broad-based, low rates tax system which has been in place for decades.

“Technology gives us better tools to put in place incentives and/or corrective taxes for areas such as environmental taxation.

“I think that Cullen is right to raise environmental taxation as part of the terms of reference.”

Cullen’s comments around “changing people’s behaviour” through taxation are especially relevant on the issues of environmental taxes, Snell says.

“You can collect data in all sorts of sophisticated ways that you could never do before – potentially that could mean you could design and manage a tax system by actually targeting taxes to change behaviour, rather than targeting taxes just to raise revenue.”

Cullen made a point of calling out plastic pollution in his speech. Using this example and applying it to plastic bottles, Snell says it would be relatively straightforward to change behaviour in this instance.

“You can find out now, quite easily how many plastic bottles are being produced, who are producing them, who they are being used by and what proportion of them are being recycled,” he says.

“Then you can target your tax instrument based on a much better string of data so you have some chance of making it stick.”

This doesn’t stop at plastic bottles, Snell says, adding that the working group could look at tax on fuel, agriculture, and expanding the scope of the fringe benefits tax to incentivise the use of electric vehicles.

What does the OECD say?

According to the OECD’s guide for policymakers on environmental taxation, protection of the environment generally requires collective action, usually led by Government.

“Without Government intervention, there is no market incentive for firms and households to take into account environmental damage since its impact is spread across many people and it has little or no direct cost to the polluter.”

How would a Government design an environmental tax? It has a few suggestions.

“Environmental tax bases should be targeted to the pollutant or polluting behaviour, with few (if any) exceptions,” it says, adding that the tax rate should be commensurate with the environmental damage.

It also suggests the tax must be credible and its rate predictable in order to motivate environmental improvements.

“Environmental taxes may need to be combined with other policy instruments to address certain issues,” the OECD says.

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31 Comments

Who decides what behaviours should be shaped? Who benefits? Who has a vested interest in the shaping?

Will it be shaping that by and large we can all go along with, like sensible speed limits, policed with tolerance and discretion where appropriate? Or, will it be more authoritarian and controlling, targeting specific groups who disagree with those in charge? "Shaping" is NewSpeak for "Controlling". Be warned, there are serious issues here.

These may be good ideas but I am very uncomfortable with handing more power to unaccountable bureaucrats and politicians. They both have a clear vested interest in expanding the system and using it for their own ends. Referrenda as in Switzerland might be an appropriate model.

http://direct-democracy.geschichte-schweiz.ch/

These are reasonable concerns, but they're not new - Who has the right to control other people's behaviour and how they should in turn be constrained, is an old old question ...

Quis custodiet ipsos custodies? (Juvenal)

... and the answers today are no clearer or simpler than they ever have been.

If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself (James Madison)

Yes, bureaucrats are unaccountable. But politicians aren't, and bureaucrats can only do what politicians enable them to.

Yes, politicians' incentives are often poorly aligned, since "what gets votes" is often not the same as "what is in the best interests of the nation as a whole". But bureaucrats are less concerned about getting votes, since they're not elected, and they have a duty to advise politicians freely, frankly and non-politically.

So between them you can hope for a balance of sensitivity to electors' preference and awareness of what's rationally best to do. Yes, this isn't perfect. But we've yet to come up with anything better

Many forms of Gov­ern­ment have been tried, and will be tried in this world of sin and woe. No one pre­tends that democ­ra­cy is per­fect or all-wise. Indeed it has been said that democ­ra­cy is the worst form of Gov­ern­ment except for all those oth­er forms that have been tried from time to time. (Churchill)

Trust the bureaucracy, they aren't biased, you mean. Yes, they are. They are interested parties, more government is very much in their interest. Politicians can only do what bureaucrats enable them to. More control, more taxation means more power, more people and more pay.

Trust the politicians, they are accountable. No, they are not. They are a cabal of special interests and behind the scene deals. That is why Winston, voted in by 7.2% of the voters, gets to be king maker. It is why they can deny the housing crisis exists for years on end and why they can deny that excessive immigration is a driving force of this.

Switzerland is one of a handful of highly democratic countries, of which NZ is one. The politicians and bureuacrats do not like referenda as they cannot control the outcome.

I don't claim that the general approach of elected politicians advised by appointed bureaucrats is perfect. Of course it isn't. It involves people, and nothing involving people is ever perfect.

I agree that bureaucrats and politicians often want more control. But consider the role of the voter in this. Most popular demand, boiled down, is precisely that Government should exercise more control over (other) people's behaviour. Stop them drinking, stop them littering, stop them hitting their children, stop them camping, stop them building new houses near me.

It's a genuine question - What do you expect politicians and bureaucrats to do in response to such public demand?

And another genuine question - Do you really think that referenda which asked whether (other) people should be allowed to make their own choices, or have those choices constrained, would result in less control and greater individual freedom? What's your evidence?

Nope - Don't see how either of those links addresses the questions I put to you.

Politicians sole responsibility is to uphold the 1688 Bill of Rights.....and other applicable documents that make up the constitutional right of the people......there is no other purpose.

Democracy in and of itself gives no one, not even parliament the right to alter the ancient individuals rights......democracy is meant to be about voting out rogue politicians when they corrupt the 1688 Bill of Rights in NZ......what we have is a circus act of people and their causes and not a skerrick of discipline in adherence to the Right of the people.

In NZ the 1688 Bill of Rights is the most abused document in history.....it has even been altered by politicians when they never had the authority from the people to alter it...............NZ politicians need to be hauled over the coals for their actions against the people of New Zealand.......The State Services Act needs to be abolished and the power returned back to the people as was their ancient right........A right is stolen purely because it has a value to someone else.......the bureucracy are nothing but a machine, exploiting the people of NZ.

Subjects’ liberties to be allowed
Now, in pursuance of the premisses, the said Lords Spiritual and Temporal, and Commons, in Parliament assembled, for the ratifying, confirming, and establishing the said declaration, and the articles, clauses, matters, and things therein contained, by the force of a law made in due form by authority of Parliament, do pray that it may be declared and enacted that all and singular the rights and liberties asserted and claimed in the said declaration are the true, ancient, and indubitable rights and liberties of the people of this kingdom, and so shall be esteemed, allowed, adjudged, deemed, and taken to be, and that all and every the particulars aforesaid shall be firmly and strictly held and observed, as they are expressed in the said declaration; and all officers and Ministers whatsoever shall serve their Majesties and their successors according to the same in all times to come:

Well voters vote in a Government, so ultimately it is us the voter.

"vested interests" simple in theory, such work has to be based on best science and done in a totally transparent manner.

They are not un-accountable they get voted in by us. But I know one thing I'd rather have decisions made by Pollies that by corporations and investors who's only criteria for success is profit in $ terms.

Jeez man , does the Government have a single original idea other than creating a raft of new, complicated and time consuming taxes , where they are hell bent on taking away other peoples money and spending it until they run out of other peoples money to spend .

Look at who the winners in a Communist NZ are going to be Boatman........

Bureaucrats will make up the party faithful directing as they see fit........just like in every other communist regime.......the facts are these bureaucrats have a hatrid towards their own countryman/women!!

There's a minority group of vocal people who want every asset holding NZ, especially those in agriculture to be removed.........they haven't got their way........so....using corrupt means like environmental taxes intend to alter the future for themselves...........these creeps are doing nothing more than feathering their own nests and it will take a huge storm to remove them......say goodbye to NZ, freedom and rights are a sunk ship. The State owns you.

We need to incentivise polluters not to pollute to begin with. A financial incentive will undoubtedly work the best.
Before anyone starts their very NZ winge about tax paranoia they need to understand this.
Most of the comments around tax paranoia can be summed up by saying “ really I am worried that by direct or indirect polluting will have a charge put on it to incentivise me not to pollute and I don’t want to change my behaviour”

We have spent $350000 on environmental protection in the last 3 financial years above what is r&m. This year we were forced to get new nutrient budgets, farm environmental plans done by outside consultants so we could apply for a resource consent - total cost $55k + my time . High country Sheep, Beef & Deer. We got the consent with no conditions (above RMA 1990) and no enforcement ability - so no effect on our farm

Our frustration is we were told by planners and council members that we would get the consent but because we didn't fit 1 of the conditions - size (out of 5). We would have done 8km of fencing , planted some more trees, 10 more stock crossings and spent more on weed and pest control .

Was this situation a good environmental outcome?
How do you cost effectively ledger-slate when farms don't fit into neat little boxes?
What is the standard that we (NZ) want our farmers to get to (and what cost socially, culturally and economic)?

$350,000 spent on environmental protection over 3 years.
How much of that was consultants and council fees?
How much of that was hands on fencing and tree planting?

$125000 fencing material
$30000 bulldozer for fence lines
$30000 digger hire
$50000 culverts and creek crossing
$60000 labour ($50/hr 1200hrs)
$20000 tractor r&m & running costs
$40000 plants around 3km plantings
Sorry don't know what you mean by consultants , but that was included in the cost of the consent above

Problem with taxing pollution is that once the pollution is "fixed", the taxation cashflow dries up. If the taxation is being spent on a long term (say superanuation for example) expense, than other sources of taxation, that meets the cashflow, will need to be found.

Much like the tobacco tax has to keep rising to maintain the cashflow from a diminishing number of users.

Punitive taxation only works whilst the pollution or the need to punish people continues.

That's only true if the purpose of the tax is to raise funds for the govt.. In this case it's not, it's to modify behaviour. If the tax worked well there would be short term spike in tax take that could go to paying down debt, then once the polluters change their behaviour the tax take returns to normal levels.

Tax take return to normal, you have got to be joking. This type of tax will not change the behavior of those doing the pollution, only the average man in the street. Watch for the unintentional outcomes.

An assumption o your part. If the true cost of doing a process is costed and that is more than it can be sold for then a business knows not to do it. This strikes me a business 101, if its not profitable dont do it.

Hmm you make an assumption here that is clearly in-correct ie the taxation is being done only to raise income, where in fact as has been stated its reason is to change behaviour. Even if possible, once its fixed then the legislation stays in place and then if a "new process" comes along that pollutes the business owner will have a clear guide on what the costs will be as part of his/her business case.

"much like tobacco" again this is incorrect the increases are there to modify behaviour. If indeed there are less smokers then it is clearly working as intended.

"punish" again your viewpoints is a bit odd given what has been said. It isnt there to punish but to factor in the true cost, ie include the externals of an undertaking. So if a process pollutes and that effects peoples health then that cost should be met by the polluter.

It can be summed up simply as less socialise the losses / costs and more privatise the profits.

No, the point of taxing pollution is that the pollution is 'fixed'.

The point of a Govt taxing pollution is to raise taxes and get votes by appearing to do something for the environment but not actually doing anything massively positive,(Consider the common belief that EVs massively reduce CO2 emission.) while ignoring the elephants in the room.
The tragedy of the commons persists...

If by EVs you mean emissions vouchers - They would massively reduce CO2 emissions, if they were scarce enough that they were seriously expensive to acquire.

If Governments hand them out for free like confetti and don't have the political balls to force the price up by severely restricting their availability, then EVs will not do anything to reduce CO2 emissions.

Electric vehicles of course.Which get rid of particulates and NOX in windless megacities, but require coal or gas burning to make the electricity.
Mazda reckon if you burn gas to power a Mada 3 EV, CO2 emission=100g/km
Conventional 2L Mazda3 petrol=165g/km, if burning coal 200g/km.
New tech 2019 petrol 3 =115g/km
Currently our 20% of electricity supplied by fossil fuel burning is about 65/35 gas/coal, varying depending on lake levels and other factors, such as which power generator is supplying what.
The point is, buying EVs en masse will not save the planet; it is a marketing exercise for automakers and vote buyers, an expensive feelgood thing.
Shifting charging times won't work if demand is sufficient to make a decent difference to CO2 emissions.
Emissions vouchers??? simplistic albeit powerful idea; but could have "externalities"

An emissions voucher with your airplane ticket could be a big start.And your house building permit!!

what??? you lie!!!!

(The point is, buying EVs en masse will not save the planet; )

Many in the Green party are so deluded, hence why I left. ie they and the rest wont consider that some "hard yards" are needed.

I'd assumed you mean Electric Vehicles (hopefully one of us is right). In that case, EVs don't immediately reduce CO2 emissions hugely as the marginal grid generation will probably come from fossil fuels. However, in time it provides the possibility and incentive to increase the amount of renewable generation in the grid. If not proportionally, then at least in absolute terms, displacing what can currently only be petrol or diesel.

And that is assuming we don't get intelligent with load balancing, charging cars overnight when demand on the grid is lower.

Spot on

Building houses causes population growth, massive pollution, environmental degradation, CO2 emissions; so tax this punitively; but don't tell Twyford.Or David Snell, as he is anexpert and already knows it..
Population growth is the biggest driver of pollution, so immigrants and women/couples who have more than 1.8 babies should be taxed heavily.
I am very anti plastic etc but population growthis the big picture.

100% correct by the look of it. Recent Canadian study pointed to the positive impact ratio of an EV at around 1.1 ie almost negligable. On the other hand having less children the ratio was almost 59 per child.

I agree on taxation, have zero or 1 get a tax break, have 3 or more tax penalty. No way that would fly I tried that whilst in the Green party and got called a nazi having no right to punish people on their "choices". (of course if its a libertarian or right winger I'm a maoist)

Time to wake up children...
"Climate change bill $14.2 billion? Try $36 billion
New Zealand could be on the hook for a big bill if it fails to take measures to reduce greenhouse gas emissions or ramp up the supply of carbon credits."

https://www.newsroom.co.nz/2018/03/08/95301/think-climate-change-cost-14...

This is a farcical paper work exercise. Meanwhile the actual, real cost of lost land, businesses, lives from CC will add up to a significant impact indeed losing us Billions and lives.

Environment taxes are nothing but a damn con job on the people.

Lets close down food production in NZ and start importing all our food! Zero emissions = zero tax ;-) ......Did I mention zero trade dollars from agriculture, horticulture etc........better hope the tourists want to keep coming here so you can exchange their dollars for food dollars..........