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Key departmental publications, e.g. annual reports, budget papers and program guidelines are available in our online archive.

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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

Investing in the future: integrating the environment into the mainstream

Trish Caswell
Australian Conservation Foundation

Those people who have a copy of the ACF submission Investing in our Future will recognise much of what I am about to say because I am speaking to it as a document, as a framework before some of the more detailed comments that Peter Kinrade will make.

Before I do so I would like to comment on the kinds of discussions to be emerging about taxation. This is the second tax seminar I have attended in two weeks. It seems that these things go in cycles. Clearly, there will be increasing pressure for Australia to reorient our tax base in the next few years. As we look at the past, we find very little discussed, except for the GST and the FBT since the Tax Summit in the early 1980s.

Environment, let us hope, will have an enhanced presence in the debate and the discussions that seem to be emerging. And we have had I think the first serious debate about the carbon tax at least in terms of the public agenda. The government itself was fairly surprised that it made the front pages, and in many ways was not prepared to defend it. It was certainly not well defended by the resource-based industries by reasoned argument.

It is a little ironic that there are now articles in the papers talking about bed taxes, taxing an emergent industry, one that would seem to be very likely to be the biggest industry in Australia, and certainly in terms of export dollars very significant in the next few years. One wonders what sorts of comparisons will be made in terms of real effects on our economic diversity and future. For example, comparing a bed tax - which in our view in no way suggests that the natural assets that it is based on are going to be looked after - with the sorts of arguments that are going on around the carbon tax.

I find it worrying that the bed tax debate may not be anything like as hot as the carbon tax debate. Maybe I am wrong and the tourist industry will defend itself very effectively. But I think it is important to look at what it means. When we talk about taxes on resources, I feel as though we are still in the colonial mentality with some resource industry looked after no matter what.

Our ACF submission Investing in our Future is probably a unique attempt from an environmental group to voice its opinion about budgetary and consequently economic directions for a national government. It is our second cut at this approach. It was very hard going to pull together what in many ways had been long standing policies and positions on things and translate them into economic-think. It crosses some ten federal portfolios and is very much a national approach. There is no intention to suggest that there isn't a great deal of work to be done at state level. We have a very ambitious idea that we would like to see state budgets reflecting this.

It suggests first of all that we don't spend all that much on the environment in terms of either our federal budget or our GDP compared to many other advanced economies. It suggests that we need to spend much more and that there is a great deal of support in the Australian community for us to do that.

Let us look at some ironies. When we look at what the Federal Government allocated in last year's budget, we find that huge programs were directly encouraging or at least were dependent on the use of fossil fuels and production of greenhouse gases. Even though there is some talk in the budget submission on greenhouse that the grid will be a good thing for us in reducing greenhouse, our fear is that the grid is still a disadvantage encouraging greater, not less use of fossil fuel.

We have signalled a number of key issues, and I will just touch on them because it will be more valuable to have some discussion around them rather to try to go into them in detail. On public investment and expenditure, we suggest that there are a whole number of areas that need to be rethought and redirected. Infrastructure is to be corporatised and privatised. We have been conducting this argument now for more than 10 years, but we would like to reiterate it from an environmental point of view because we feel very insecure about how we will maintain environmental values without public infrastructure. In our submission we point to questions related to planning, public housing and transport; energy, agriculture and water sectors; natural resource conservation and management; industry and environmental research and development; and environmental regulation and monitoring.

We addressed the subject of government assistance to industry, especially as we are aware of documents not too far in the past, such as one entitled The Rebirth of Australian Industry, which indicates that the targeting of industry-assistance policies has made significant contributions to successful sectors. I must say that we still find it an enormous struggle to encourage an industry plan approach to the environment services sector.

Our Green Jobs in Industry report points to two aspects. One is the general need to 'green' all industry and production. Secondly, we need to be much more conscious of and proactive about our environment industry sector - something with potential, but something that is definitely struggling and certainly not competing well with similar sectors in other countries.

Public revenue has been part of the debate about the carbon tax. We call it a carbon levy, related to the need for strong public revenue. I think that the resurgence of the tax debate really indicates that that is well and truly on the agenda. The horror budget that we expect this year will be very much about that declining, fragile revenue base and how it might be reconstructed. We know that it has been in decline and we know that globally it has trended that way for some time.

In relation to taxes themselves, we have quite a lot of work to do, but it can be said that we have started bravely by suggesting that right now, and certainly into the future, it is highly likely - we certainly favour it - that the taxation basis should be much more about resources, what they mean to us and what they cost us, and not so much labour. It is only sensible to safeguard what is scarce, and therefore taxing is a very rational approach to look after scarce resources. I do not think there would be anyone in this room who does not think that we will have some of those scarcities, despite the present confidence to the effect: 'Oil ain't in trouble at the moment'.

We recommend a shift of taxes away from job-based taxes and onto resources. There is no doubt that that has significant implications for Australia's economy. But it will happen in one way or another. Therefore, let us be ahead of the game rather than behind it.

On the topic of deregulation, commercialisation and privatisation, I have already mentioned some of the issues relating to public revenue and infrastructure. Let me add the question of user -pays and how we integrate that into environmental costings, into social equity issues, into consumer issues and resource values. We are acutely aware that that must be built into in any package.

We have also made some recent advances in talking to social welfare expert groups such as ACOSS about the social equity implications. In the end they supported our proposal for a carbon levy and the greenhouse package that went with it on the basis of conditions so that people at the lower end of the income scale were protected against the most obvious outcomes. We have factored that element in.

Private investment relates very much to industry assistance and industry policy. We hope that we will move into a new phase of looking at potential winners, although I know one is not supposed to use that term in public but only behind closed doors. Let us be frank about it and say that in one way or another economic policies do pick winners. Whether by pointing the finger at a new industry or protecting an old industry, it seems to me that you would be hard-pressed to argue that in nearly every configuration of economic there were not some assumptions about which industries were to be kept alive and which could be sacrificed.

We think we should have economic growth that is ecologically smart - a much more sophisticated idea of growth than the traditional notions. We think that should relate to how we provide foreign aid and how we relate especially to Asia in terms of ecological security. We feel this also must be matched to job and wealth creation. Our Green Jobs in Industry report indicated that job growth in environmentally related industries was far and away above normal growth rates in the job market. There is enormous potential but it is only going to be realised if it is nurtured and not disadvantaged by all sorts of barriers, disincentives and the tax schedule as it now stands.

Ideally, what we would like is a totally inter-related package that is environmentally and economically friendly.

We outlined eight priorities: biodiversity; reduction of greenhouse; introduction of eco-taxes and eco-incentives; restoring the public sector's revenue base; clean production promotion; cleaner greener cities, reduction of unemployment, which I have already mentioned; support for Australia's indigenous people - this is a key aspect, both environmental and job-related; and institutionalised change for better policy implementation to achieve these goals.

We have been very weak on institutional change in Australia. When you look at legislation in that supposedly unregulated market centre of the world - the United States - and you find up to 20 pieces of pretty hefty environmentally related statutes at federal level, and many at state level - often under the signature of Richard Nixon - and compare it with Australia's record, you realise that we are certainly not over-regulated in environmental terms.

I was shocked when I realised the incredible difference between the attempts at real institutional change in the United States compared with the situation here.

I do not intend to say much more, except that we also suggested there should be a 'green' budget, which is our way of tabling the need for full environmental costings. The Treasurer, Mr Willis, has already moved a little along that way with his recent announcements about Treasury's approach to beginning to include such costings.

Finally, we believe that this should be integrated in a prime ministerial statement about the environment that places the environment in mainstream. I know it is felt that greenies are ever -optimistic. I do think, however, that it is very important to realise how mainstream some of the arguments are now becoming in the community, but how marginalised they often remain in economic debate among the experts, and certainly political debate among the politicians. I find it strange that politicians are the last to be expert. But I think the idea of integration of environment into our economic thinking, if we do it well, is a fabulous step forward and gives us a lot of hope that Australia can be unique, and also do some very clever things in regard to its wealth base. It very much depends on some real courage and real diversification of thinking, industrial and economic activity, rather than a continual harking back to what is a fairly colonial mentality about our major resource based industries.

I will hand over to Peter Kinrade, who is our Greenhouse Campaigner, and who has been doing an extraordinary job in pulling together a whole lot of threads of arguments and positions on greenhouse. He will also be attending the discussions in Germany.

 

Peter Kinrade
Australian Conservation Foundation

I wish to go through the carbon levy proposal as put forward by the ACF and put it in an historical and policy context, particularly given that carbon levies used to be the flavour of the month until a couple of weeks ago. I do not think it is widely recognised the extent to which ACF has been involved in putting forward proposals relating to carbon taxes and how that relates to other greenhouse policy proposals which have been put forward for a number of years now.

As Trish mentioned, the carbon levy is one part of the ACF's budget submission, and it was also included in our budget submission last year. ACF's proposals relating to carbon levies go back further than that. In fact, we initially proposed a carbon levy in 1991 when we were part of the ESD working group discussions. We put forward a carbon levy proposal then in two or three of the working groups. Not surprisingly, it didn't get very far, but it formed the groundwork for subsequent proposals which have been redeveloped but largely along the same lines that we initially proposed, but with some refinement and some changes in terms of initial costing.

As a matter of interest, the first levy we proposed back in 1991 was for a $10 levy per tonne of carbon, which is equivalent to about $2.50 per tonne of emitted CO2. The levy we now propose is about $8 per tonne of carbon, and $2.20 per tonne of CO2.

The context should be seen to relate two areas.

One is the theoretical, and we do not say that our levy necessarily falls into what you call a fiscal tax, in that it is not meant to have budgetary implications - not at this stage. It is not exactly a Pigouvian tax either, because the nature of our levy proposal is not to directly influence consumer behaviour through a large tax impost. Rather, the overriding reasoning behind the tax is practical outcomes. The overriding point that we make in terms of any sort of policy mix is to achieve outcomes consistent with ecologically sustainable development.

So we based our arguments for a fully hypothecated carbon levy on the grounds that we believe this to be the most cost effective means of achieving particular emission reduction objectives. We have done that on a couple of grounds. One is that we believe that as to the current way the energy sector is structured in Australia, as has been emphasised in many reports, there is a range of non-technical barriers to implementation of energy efficiency programs, but also to some extent in terms of renewable energy.

A number of reports from overseas have shown that if you want to overcome these barriers, the most cost effective means of doing so is through a broad package of measures. Those measures include institutional reforms, financial incentives, regulatory measures such as energy efficiency standards, public education and awareness campaigns, and a range of other measures. We have basically said that if you are to put in place that package of measures, given the current political and economic climate, you will not get up the necessary package of measures to overcome those barriers unless you come up with some sort of revenue source to fund those measures.

From our point of view, the theoretical basis for using a carbon levy to provide that revenue source comes from the principle that if you are depleting natural capital such as the atmosphere, you should be putting in place taxation measures to help compensate for the run-down of that natural capital. And a carbon levy is one such proposal.

The figure of $2.20 per tonne of CO2 is based on carbon content of fossil fuel, so it was to apply across the board to all sectors. We believed that was the most rational way to approach the issue. There were some suggestions that certain sectors should be exempted, but we felt that if you were to be consistent in the approach to applying a carbon levy, and in turn fully implementing the package of measures related to energy efficiency and renewable energy, it needs to be applied across the board to be consistent.

But as Trish has said, to overcome some of the social equity concerns we came up with an agreement with ACOSS that fixed income social welfare recipients should receive a full rebate for the cost impost of the carbon levy. But we did stress at the time that we did not believe our carbon levy proposal would have a major impact on social equity, particularly if the sort of programs that we were proposing to be funded through the levy were fully implemented.

Our levy proposal was probably more or less in its current form put forward about two years ago. The $1.25 levy proposal that was subsequently put forward through DEST I think was more or less a watered down version of the ACT proposals that went forward a couple of years ago. We had major problems with the $1.25 proposal from DEST, partly because it was only targeting fixed emission sources and not transport. But also particularly because they were only proposing to hypothecate some of the revenue for emission reduction programs and measures. We felt that to have legitimacy and the support of the public the full revenue raised through the carbon levy had to be targeted at programs and initiatives on a basis of greenhouse reduction.

That, incidentally, is probably one of the reasons we believe it may not have got up or got the political support that we felt it deserved. Certainly we have not conducted any surveys on our carbon levy proposal but, as Trish said, a number of surveys have been conducted. We suggest that the community favours greatly increased expenditure on environmental initiatives; and secondly the community will favour increased taxes if they believe the revenue will be specifically targeted at environmental initiatives.

Certainly in a number of talk-backs the message came through that to the extent that the public did support a carbon levy - and about half of the calls that came through were saying: 'Yes, we support your proposal' - and to the extent that there was opposition to the levy, it was based almost entirely on the view that the government would not honour any commitment to hypothecate the levy to environmental reduction programs. So there was scepticism that the government would use the levy for environmental outcomes.

In conclusion, we felt that the full merits and full basis for our carbon levy proposal has not been fully debated in the public arena. Certainly the negative sides were greatly over-emphasised, and none of the positives were brought forward at all. We believe, based on overseas experience, that provided the revenue from the levies is fully hypothecated to emission reduction measures, it can achieve concrete outcomes in the most cost effective manner.

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