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Taxation and the Environment

Environmental Economics Seminar Series
Department of the Environment, Sport and Territories
March 1996
ISBN 0 642 24878 8

Contents


Foreword

In 1994 the Department of the Environment, Sport and Territories, through its Environmental Economics Unit, commissioned the Centre for Continuing Education at the Australian National University to conduct a series of seminars for invited speakers and participants on four newly developing environmental economic issues: Consumption and the Environment; Taxation and the Environment; Equity and the Environment; and Environmental Policy and International Competitiveness. The seminars were held in Sydney, Canberra (two) and Melbourne between November 1994 and June 1995. This report is one of the four reports on those seminars. The views expressed at the seminars are not necessarily the views of the Department.

Introduction

On behalf of the organisers, the Centre for Continuing Education, and the funding organisation, the Department of the Environment, Sport and Territories, I welcome you to this seminar on taxation and the environment.

To make clear my interest in this topic I should say a couple of things about myself. I have been the Environment Commissioner with the Industry Commission from the time that position was created - about five years ago. In this position I have been involved in a number of inquiries in which the issue of environmental taxes, charges or levies was a consideration.

When Mick Common asked me to chair this session today, it took me back many years. About 20 or 25 years ago I was a taxation assessor. I have found myself in rather peculiar jobs over the years! We are gathered here today to look at an issue - tax and the environment - which has had a long and quite respectable history in economics. As economists would know, the notion of pollution or environment taxes can be traced back some 70-odd years - to the eminent economist Pigou. In most recent times, since about the mid-1970s, the OECD - and Australia, as part of that - has promoted the idea of the polluter pays principle, which has obvious links to taxation in the environment.

I am not going to say too much about the issues. You should all have the background paper prepared by Mick Common, which covers those and other matters in some detail. Also, of course, we will have the papers from our invited speakers. As Environment Commissioner for the Industry Commission, I have been involved in a number of inquiries where we have said, amongst other things: 'get prices right'. That would mean that if there were a particular pollution or emission out there, and it was considered harmful, society should consider imposing a pollution tax, a tradeable right or some other market-based mechanism, rather than a prescriptive standard.

I should also note that in my experience the polluter pays principle is considered by the public as being fair. We see a number of environment levies around the country today - for example, water pollution charges in New South Wales, and the bushland levy and a Barrier Reef visitors' charge in Queensland. Of course none of these are taxes that aim to change behaviour. Rather, they aim to obtain money to either fix an environmental problem or manage an environment on a sustainable basis. In some cases policy makers have had empirical evidence on which to base their charges or levies.

Notwithstanding the existence of charges and levies, and notwithstanding initiatives to make our economy more efficient in economic terms - the so-called microeconomic reform - for some reason or other it appears that little attention has been paid to applying the polluter pays principle in Australia in an economic framework.

Most of what has been done has been via regulations rather than taxes. Perhaps there are good reasons for this. But clearly, in considering the economy and the environment together, we need to consider taxes and also alternatives to taxes. There are a number of alternatives, some market-based and others purely regulatory or 'command and control' as some people call it.

It is quite obvious that if we are to use a tax or a tradeable right or whatever, there is a fundamental question before we decide on the quantum of that - that is, the scientific issue of how much pollution we should take. Australia has a fairly long history of using tradeable permits for managing fisheries, but the first question asked is, for example, how many tuna should be taken. Then the tradeable permits are put in place.

We need to recognise that fact because one hears arguments about our taxes vis -a-vis other market-based mechanisms, and I think the notion that the science has to be as right as possible is often overlooked.

The other matter to which I wish to refer briefly goes back to my experiences as a tax collector. It appears to me that over the years cultures or attitudes have changed in relation to taxes. I suppose no-one like paying taxes. However, when I was a tax collector working for the Australian Taxation Office, I did not come across the attitude that government services were wasteful. There seemed to be an attitude in those days that we all owned a bit of public property, whether it be a bus or the train on which we were travelling, and we had an incentive to look after that property.

I am not saying that human nature has changed in such a short period - of course it hasn't; but I think we have lost sight of the fact that Adam Smith brought home when he founded modern economics, and that is that human beings have both a social or community concern that requires follow-up action, and a private or individualistic concern, which results in consequent actions. We need to be mindful of that and I think there has been some change in regard to taxation generally here and in other countries in that regard.

The final issue I wish to raise is that when we think of taxes, levies or charges, we need to consider whether or not there is some advantage in earmarking those. Quite clearly there are examples in this country where an environmental levy has been imposed for a particular goal - to clean up some pollution, for example - and that has been welcomed.

The recent debate about carbon taxes became clouded and divided into two separate issues - a Pigouvian tax and a fiscal matter. As Mick Common points out, there is a potential double dividend when we bring those two together. We are encouraged to explore that issue today.

If we are serious about ecologically sustainable development, or ESD as we call it, when we consider taxes and the environment we must realise that taxation has a major role to play in intra-generational equity. In that context we need to think of the role of taxes on income, wealth and inheritance.

Again, on behalf of the organisers, the CCE, the funding organisation, DEST, and Mick Common, who has done most of the work for this meeting, I ask you to welcome Dr Gul Izmir, for the first of our detailed presentations. Gul is well -known to all of you, as she is published widely in the environmental economics area.

Tor Hundloe (Chairperson)

Environment Commissioner, Industry Commission.

March, 1966
Commonwealth of Australia 1996
ISBN 0 642 24878 8

This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without written permission from the Commonwealth Department of the Environment, Sport and Territories. Requests and inquiries concerning reproduction rights should be directed to the Commonwealth Department of the Environment, Sport and Territories

Department of the Environment, Sport and Territories
GPO Box 787, Canberra ACT 2601
Telephone (06) 274 1111
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