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Federal Minister for the Environment and Heritage
The Hon Dr David Kemp, MP

Fourth International Environmental Taxation Conference
Friday 6 June 2003

The Environment - A Taxing Issue?

Thank you very much Professor Yerbury for that introduction. That's one of the kindest and nicest introductions I've received for quite a while so please accompany me when I go round the country. I certainly enjoyed Professor Yerbury's company on our joint visit to Israel where we looked at issues of innovation and commercialisation together.

Could I say how delighted I am at the role that Macquarie University has played and at the coming of this Fourth International Environmental Taxation Conference to Australia. I was very pleased to hear how many people are coming to this conference from other countries. I hope that for some of you this is your first eye-opening visit to Australia and that you will enjoy being here in one of the most beautiful cities in the world and have the opportunity to appreciate the remarkable environment and the wonderful historical heritage that we have here in Sydney.

As Professor Yerbury said in her introductory comments, one of the key issues which faces anyone concerned with the environment is how to make available the resources that are necessary to both improve the quality of our environment, to improve the cleanliness of our air, to manage the waste that we produce, to keep our seas and rivers unpolluted, to restore degraded agricultural land - all of these are fundamentally important issues and all of them require money, and it is a great challenge for governments and community as to know how these resources are to be accumulated and how they can be best spent.

Today I'm going to give you some sense, I hope, of how the Australian Federal Government goes about this, and of course you've come to a country which has one federal government and eight state and territory governments, and all of them have policies, all of them have control over taxation instruments of one kind or another, all of them have regulatory power, so within this country we have a great many approaches to environmental issues.

There is, I believe, a very strong desire on the part of the business community and on the part of other communities around Australia to, in many respects, have a national approach to environmental issues.

There is much that can be done by States, there is much that has to be done with partnership between different levels of government and the local communities. There is a desire to have national frameworks in place and I meet on a very regular basis with all the environment ministers from the States and Territories to discuss how we can best approach nationally important issues in a national way and I'm very pleased to say that at the moment we have got a very high level of co-operation in this country on these issues, despite the fact that the Federal Government comes from one side of politics and all the State and Territory governments come from the other side of politics.

This is a rather remarkable feature of our current arrangements but despite that I would have to say that the Ministerial Councils, with which I am involved, have an absolute minimum of politics involved in the ordinary sense of the term and an enormous amount of co-operation and a willingness to look at the substance of issues and I certainly have derived a great deal of satisfaction from that experience.

I can't help noting however that when we come to the taxation policy area that there does seem to be some difference between our State colleagues and the Federal Government because in all the recent State budgets in Victoria, Queensland, South Australia, Western Australia and the Australian Capital Territory, we saw increases in taxes, including many increases in levies, whereas in our own Federal Budget brought down recently we made the very best effort we could to deliver tax cuts.

Now I don't know whether this represents a philosophical difference or just a difference in our responsibilities. We're not entirely on the same track - but when it comes to environmental measures, we are seeking to head down the same road and in a co-operative and co-ordinated way.

Taxation plays a very key role in influencing the decisions of people and the incidence of taxation is critically important in producing outcomes. We are all interested in seeing how the tax system can be used to advance environmental considerations and values without in any way undermining the important characteristics of good taxation systems. That is, that they are simple, that they are efficient and that they are fair, and that's always a challenge for tax policy experts and of course there is to some extent, I suppose amongst the purists, a sense that maybe one should really only think of taxes as raising revenue in the most efficient way and should exclude environmental considerations and other social considerations from the tax system and deal with those through the spending programs of governments where they can be very transparent. On the whole I would say that that is a philosophy which is very strong within the Federal Government, but nevertheless there are occasions when it is seen as being necessary and expedient to use the tax system to promote certain kinds of outcomes, and environmental outcomes are very important amongst those.

Taxation is however of course only one of the mechanisms available to government and I'd just like to say some things this morning about the range of mechanisms because they go hand in hand. Tax is often the other side of the coin to a subsidy, a rebate or a grant. Industry partnerships, institutional reform, the definition of new markets in environmental services - these are all opportunities open to government using its regulatory and taxation powers.

Depending on the circumstances therefore, governments do need to look across the whole range of mechanisms that are available to them in making the wisest possible decisions.

It's indisputable that Australians enjoy a lifestyle which is the envy of many around the world. Our great open spaces, our clean air, abundance of wildlife, spectacular coasts and landscapes all contribute to a level of amenity which is often hard to find elsewhere. For those from overseas or from around the country who are here today, I do hope that you have a chance to experience this during your visit - perhaps even locally take a ferry ride across the magnificent Sydney Harbour or a day trip up into the World Heritage Listed Blue Mountains which are on Sydney's door step.

However, this relatively unspoiled environment also presents Australia with great environmental challenges and in order to consider how we use tax and other mechanisms, I just want to say a few words about the very special characteristics of the environment in this country.

Australia is the only OECD country which is classified as a mega diverse country in environmental terms.

We have around half a million separate species or around 10 % of the globe's biodiversity - and much of this biodiversity is absolutely unique. Indeed, 80 % of all our flora and fauna is found only in Australia.

Many environmental indicators show that Australia is facing environmental challenges unparalleled by almost any other developed country. The Government's State of the Environment Report, which I released last year, found that the clearance of native vegetation remains the single most significant threat to our biodiversity. The degradation of lands and waters are a critical concern with a large area of acidic and sodic soils seriously distressing important ecosystems.

This is largely a product of our island continent's ancient and isolated ecosystems that have evolved over hundreds of millions of years on this massive ark we call Australia in a way that has happened very rarely in other parts of the world. Australia was not covered by ice twenty thousand years ago. For two hundred million years, this great ark has had life evolving and it's evolved into many thousands and even millions of unique and unparalleled forms of life.

Within this context the Government is moving forward and making progress on many environmental issues:

These initiatives show the full range of mechanisms that governments have got available to them to achieve environmental outcomes - the capacity to lead and to persuade, the authority to tax and to spend, the power to create markets and to empower users and communities.

Our core philosophy is that to successfully manage the massive environmental issues of the kinds that we face and in freeing up the resources to do that involves empowering individuals, communities and businesses to seek their own solutions, rather than having government and its bureaucrats go out and try to solve these problems themselves. That will never happen. It will only happen when the community itself owns the environmental problems and has got the capacity to address them through wisely designed frameworks that government has a very significant role in putting in place.

This approach lends itself very naturally to the use of economic instruments of which taxation is only one weapon in the armory. Examples of environmental taxes in Australia include levies on industry pollution for the atmosphere and waterways, tax differentials for fuels and taxation incentives for conservation activities, and I want to say a little bit more about this in a moment.

I was recently interested to see the OECD's latest revenue statistics for Australia, which show that Australia is the sixth lowest taxed country in the OECD, with the United States, Mexico, Korea, Japan and Ireland marginally below Australia.

In terms of environmentally-related taxes I also note the OECD's assessment of Australia as sitting at the OECD average between 6 and 7 % of total tax revenue.

This confirms Australia's position as a low-tax to GDP country but also positions us well in terms of the “greenness” of our fiscal system.

The Federal Government is increasingly looking to market-based instruments to unleash the power of markets to protect the environment.

Underscoring this Government's approach is the philosophy that it is better to empower communities to solve environmental problems than to impose heavy-handed regulation.

Market-based mechanisms have a critical role in providing an effective, equitable and sustainable response to our environmental challenges. Market instruments are also very good at delivering policy outcomes efficiently compared with other instruments such as regulation or politically directed spending. Of course it is even better for people to solve problems themselves without any Government intervention and I will be announcing one way Government is helping with this later on in my remarks.

Our Flagship programs in the environment at the Federal level are the National Action Plan for Salinity and Water Quality, which is funded with $1.4 billion from the Commonwealth and the States, and the Natural Heritage Trust which has had funding allocated to it of $2.7 billion. Under these over-arching programs, market-based initiatives feature strongly. For example:

Fuel Excise has been a very important area for us in relation to the environment and renewable energy. The Prime Minister recently established a Ministerial Oversight Committee on Energy to develop a long-term energy policy and ensure an efficient and competitive energy sector. Fuel tax reform is a key part of the strategy and the achievement of environmental benefits is a key consideration in the design of the fuel tax arrangements.

The Government's initiatives in this area are not only aiming at the establishment of a more consistent and sustainable fuel tax regime, they also encourage the production and take-up of cleaner fuels and technology and the development of alternative fuels.

For example:

These fuel changes which the Government has put in place are clearly set out as being for a specific period of time with a phase down period so that they ultimately can be placed on a more commercial basis, having in mind their environmental benefits. We believe that this combination of reforms is delivering environmental and health gains to Australians through reduced emissions of hydrocarbons, oxides of nitrogen and reduced particulate emissions. The Government's approach will also facilitate the adoption of better emissions control technology.

One of the important mechanisms that is available of course in any market place and any community is the provision of information. The Government's overall objective is to lighten the ecological footprint of the economy as it progresses. The most efficient way, as I mentioned earlier, is to empower people and information is a very important part of that empowerment.

Increasingly, financial markets and corporate environmental reporting are encouraging and rewarding more sustainable business practices.

Business has the capacity to innovate and change the way we do things by producing goods and services with a smaller environmental impact and very often that greatly assists the bottom line - if you use less resources, you use them more efficiently, the company can become more profitable while being environmentally responsible at the same time. However, because companies need to maximise shareholder value, business quite rightly, is only going to take a number of the relevant actions if markets support them.

Increasingly the business community is starting to adopt the notions of Corporate Social Responsibility and the Triple Bottom Line and recognise their values. If environmental performance is disclosed by business and understood by financial markets, the market these days increasingly is going to reward good performers. Financial institutions are also finding that the Triple Bottom Line approach gives a better indication of a company's approach to its risk management.

For the last five years, the Commonwealth Government has been at the forefront of promoting corporate environmental reporting in Australia. For example it has supported the Global Reporting Initiative Sustainability Reporting Guidelines, which enjoys widespread international support from governments, industry and non-government organisations.

Despite this activity, a recent government report found that of the top 500 companies operating in Australia, only 57 produce an environmental report. Whilst this is a significant improvement from 10 years ago when only one reported, it is not as fast as many of us would like.

In order to continue the Government's efforts to encourage more companies to take up the challenge of reporting on their environmental performance, I am pleased to release today a new Government publication - Triple Bottom Line Reporting in Australia: A Guide to Reporting Against Environmental Indicators - and there are additional copies of this report available at this conference.

This guide will provide Australian organisations for the first time, within an Australian context, a framework for producing triple bottom line reports. I hope this is what the non-reporting companies have been waiting for to get them across the line.

In conclusion, can I sum up by saying that we realise in this country that we do face a unique set of environmental challenges. Recent initiatives have been the result of ongoing work to put in place sustainable governance frameworks that will provide the basis for the community to tackle these environmental challenges.

Market-based instruments, including taxation, will play an important role in achieving this outcome while making sure that any trade-offs are made at the lowest possible cost to society. I look forward very much to hearing about to the contribution that this conference will make for progressing these important issues for Australia.

Thank you.

Commonwealth of Australia