The Future of Tax – What about Transport?

A couple of days ago the Tax Working Group released their report – The Future of Tax. Most of the media coverage has focussed on the capital gains part of it. Don’t worry – I have no intention of going into any that here. Also Greater Auckland did a piece on a wee part that talked about trying to rebalance mode-specific fringe benefit taxes so I won’t rehash that.

There was a whole bunch of other stuff in the report though that only got quite minimal coverage, which I thought was surprising considering some of it could have profound impacts on all of our lives – arguably far more than any capital gains tax will.

There was a whole section of the report on what they call “Environmental Taxes”. These currently include transport -related taxes (vehicle registrations, road user charges, fuel excise, Emissions Trading Scheme) and not a heck of a lot else.

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The report talks about the potential for better use to be made of taxes that directly offset externalities.

“In the short term (the next 1 – 5 years) the Group recommends better use of environmental taxes to price negative environmental externalities. Environmental taxes can be a powerful tool for ensuring people and companies better understand and account for the impact of their actions on the ecosystems on which they depend.”

“The Group wishes to highlight five specific areas for further attention in the short term: greenhouse gas emissions, water pollution, water abstraction, solid waste and road transport.”

Specifically regarding road transport it says:

“Road transport generates a number of different negative externalities. These include road damage, congestion, greenhouse gas emissions, air pollution, noise, surface pollution, injuries and death. Some of these externalities better meet the criteria for negative externality taxes than others but there is generally a good fit.”

“A number of tax instruments already address some road transport externalities. For example, the Emissions Trading Scheme prices greenhouse gas emissions, and petrol and registration levies fund costs relating to injuries and death.

Congestion is likely to be the largest unpriced externality in road transport. Local air pollution, surface pollution and noise are also unpriced. These externalities are highly specific to time, place and type of vehicle. This has historically created measurement and pricing challenges.

There are now a range of technical solutions to make measuring and charging for these externalities feasible. For example, an enhanced road user charging system that captures information on location, time, type of vehicle and load could allow for more refined pricing of a broad range of externalities.”

“In the short term, there are opportunities to better use environmental taxes to price negative environmental externalities. Areas for improvement include the Waste Disposal Levy, the ETS and congestion charging.”

I think this all sounds pretty good. Getting the emissions trading scheme working properly is an important piece of the puzzle to not destroying our planet. And congestion charging has the potential to fundamentally change the way our cities function for the better. It’s nice to see congestion charging is considered a short-term option (1-5 years), rather than the longer timeframes I’ve heard others give.

Also good is the fact there doesn’t seem to be too much public controversy over these aspects. Most of the media coverage I’ve seen has been positive about the recommendations around environmental taxes, regardless of what political leanings the authors have had. The Spinoff did a piece asking 5 different experts what they thought of the report. Two didn’t mention the environmental taxes; the other three all spoke positively about them. Economist Eric Crampton said:

“The Tax Working Group recommends shifting towards environmental taxation. In principle, this has a lot of merit. Taxes that correct underlying distortions provide a double dividend. Not only do they raise revenue, but they also improve overall economic efficiency if they’re done well.

The group recommended strengthening the Emissions Trading Scheme and having it shift, in effect, to being more like a tax by having the government sell more of the permits over the longer term. That recommendation should be supported if implemented well.

So too should its recommendation to use congestion charging to help fund the roads – it makes a lot more sense, and is far more equitable, than measures like the Auckland petrol levy that fall very heavily on poorer families with less fuel-efficient cars.”

The devil will be in the detail though. My impression is that pretty much every recommendation in the report makes perfect sense in theory, but the success or failure of each tax depends on whether it can be implemented in such a way that it is simple, understandable, and easily enforceable.

Only time will tell if that is the case or not. But it seems to me like we’re slowly shuffling along in the right direction at least.

3 thoughts on “The Future of Tax – What about Transport?

  1. “So too should its recommendation to use congestion charging to help fund the roads – it makes a lot more sense, and is far more equitable, than measures like the Auckland petrol levy that fall very heavily on poorer families with less fuel-efficient cars.”

    Congestion tolls should only be paid by those creating congestion, which is usually during the peak periods. Ideally implemented as in Singapore where it is by direction and reviewed every 6 months.

    Fuel excise tax should be paid by all drivers as a simple proxy for the per km use of the transport system.

    Yes the petrol excise tax and petrol levy in Auckland is regressive, but is best compensated by government transfers and the provision of public transport.

    If equity is still a concern with congestion charges, even after government transfers, then everyone in Auckland should be given quotas and everyone be allowed to sell those quotas if they don’t need them.

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    1. Although I mostly agreed with Eric Crampton’s quote, I actually disagreed with his statement that fuel excise is regressive. It’s more complicated than just “poor people drive gas guzzlers” – you have to take into account the positive impacts on everyone who doesn’t drive, and the fact that not having fuel excise would mean higher rates and other taxes.

      I’m still unconvinced that equity is an issue with congestion pricing. Our current pricing system is extremely inequitable – there’s an argument that road pricing may actually improve equity. And even if it doesn’t, it’s not hard to offer discounts to poor people like we do with other public services.

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  2. Equity is an issue.

    1) Some people cant afford cars

    2) We don’t provide a PT comprehensive coverage network. Some ODs are not even served. Some bus frequencies on ODs that are served are > 30min. 30min is the absolute minimum service level one might provide & it still leaves a 30min wait time if the transfer window is missed.

    3) Paying for a taxi or uber is not a realistic cost alternative to cheap PT. Welfare transfer payments are not enough to cover these options either.

    4) Not everyone is capable or walking or cycling the OD trips & the not all ODs are within those distances.

    5) Not everyone has someone that might offer a free ride.

    6) Social exclusion from viable transport options for access to jobs, doctors etc is a majoe economic cost to the poor and society as a whole, and is essentially left out of transport analysis.

    7) The issue lies at the governments door. The government should fund a comprehensive coverage network in urban areas. Its doesn’t need to be fixed route but can include on-demand transit to the nearest stop/hub.

    8) Let ratepayers fund service level improvements over and above this.

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