Tax working group

Analysis

Environmental and ecological outcomes

Tax Working Group Interim Report

Robyn Walker

As society as a whole becomes more conscious of environmental issues, it is fitting that the Tax Working Group (TWG) has given consideration to how the tax system can be involved in improving environmental and ecological outcomes.

Currently environmental taxes in New Zealand are levied for non-environmental purposes.

Current environmental taxes $4.9b (2016)

47% - transport taxes, e.g. road user charges, vehicle registration fees

51% - energy taxes, e.g. transport fuel taxes

1% - pollution taxes, e.g. waste disposal levy

1% - energy resource levies



The TWG have considered potential changes to the tax system to support better environmental and ecological outcomes over the short, medium and longer terms. There are five areas singled out for further consideration: greenhouse gas emissions, water pollution, water abstraction, solid waste and road transport.

Greenhouse gas emissions. The TWG note that greenhouse gases are well suited to the use of tax instruments. While there are criticisms of the existing Emissions Trading Scheme (ETS), the TWG conclude that the ETS should remain the centrepiece of emissions reduction efforts. With other committees already formed to look closer at this issue, the TWG conclude that the ETS should be reformed and periodically reviewed to ensure it remains fit for purpose.

Water pollution. Applying taxes to water pollution may be challenging due to measurement issues. There are additional considerations in relation to water, such as Māori rights and interests, which also makes taxes more challenging to consider. The TWG concludes that if Māori rights and interests can be addressed there could be a role for taxes to address water quality issues. The report makes reference to the potential for a national fertiliser tax, but does not elaborate further on this option.

Water abstraction. As with water pollution, the TWG single out Māori rights and interests in water as an issue needing to be resolved before looking to tax water. If these issues can be resolved, the TWG consider a water tax would be a useful tool for improving the efficiency of water use.

Solid waste. Landfill waste levies are currently in place for certain landfills and currently raise approximately $30 million per annum. If the rate of the levy were increased and then expanded to all landfills, it is possible that an addition $200 million could be raised each year. As the Ministry for the Environment are currently undertaking policy analysis in this area, the TWG defers to this work.

Road transport. There are a number of existing reviews being undertaken into roading, such as the Government’s Urban Growth Agenda. The TWG supports these reviews continuing and being used as an opportunity to better align road user charges with externalities.

Tax concessions

The flipside of taxing negative impacts on the environment is to provide tax concessions for good behaviour.

In response to submissions, the TWG recommends there should be tax deductions made available for costs associated with the care of land subject to the QEII Covenant and costs associated with the care of Ngā Whenua Rāhui.

The TWG acknowledge that there may be a case to consider tax incentives for activities that have general environmental benefits. However, there should also be consideration of reviewing existing tax concessions which could be viewed as degrading natural capital. Tax concessions for agriculture are singled out as an example of this.

The TWG has been evaluating imposing a fringe benefit tax (FBT) on employer provided carparks (after a very public failure to find any workable option in 2012). They conclude this would not be practical so instead encourage the Government to consider removing FBT on employer subsidies of employee public transport costs.

Revenue recycling

The TWG suggests there is a strong case for recycling the revenue from environmental taxes into measures that support the transition to a more sustainable economy (their pun, not ours). This is viewed as a good option since it reinforces the purpose of the tax through funding complementary activities, while also providing fiscal transparency that the tax is for environmental purposes and not simply to raise revenue for general government expenditure.


Environmental and ecological recommendations:

  •  There should be periodic reviews of the ETS to ensure it is fit for purpose
  • Supports continued work by other groups, particularly in relation to Māori rights and water interests; and work being undertaken by the Ministry for the Environment in relation to Waste Disposal Levies
  • Not to change the existing petroleum and mineral royalty regimes (last reviewed in 2012)
  • Allow tax deductions for costs associated with the care of land subject to the QEII Covenant and costs associated with the care of Ngā Whenua Rāhui
  • Review existing tax concessions for agriculture that degrades natural capital
  • Consider incentives for activities which generate environmental benefits
  • Consider removing FBT from employers subsidising public transport use by employees

 

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Tax Working Group Interim Report

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