EY - Debate needed on carbon tax proposals

Debate needed on carbon tax proposals

  • Share

Hats off to the Greens for kicking off the carbon tax debate.

Currently there are no meaningful measures in place to incentivise business to adopt sustainable practices to reduce pollution. Though some will see the Greens’ policy announcement as political opportunism or business bashing, others will view it as a responsible approach to protecting our environment.

The Greens’ policy was costed and includes a compensation element via corporate tax cuts and making the first $2,000 of personal income tax free.

Costs outweighing benefits

But two of our biggest exporters, (dairy and forestry) are not likely to recover their costs so the impact on our domestic markets is likely to be out of proportion to any potential benefits.

Blunt policy instruments will not deal with the complex challenge of creating a sustainable environment for New Zealand. Rather, we need deploy a range of well-considered stable and transparent long term measures.

Reducing personal taxes

On the need to further reduce personal taxes, a good starting point is the latest OECD study, showing that among 34 OECD countries New Zealand has the second to lowest personal tax take.

Recent data from Finance Minister Bill English’s office reveals households earning more than $150,000 a year are forecast to pay 74% of the net personal income tax take in 2014/15, compared with 58% in 2008/09.

But when it comes to the environment, a penalise-and-redistribute policy is unlikely to be enough. We can do better.

The challenge in China

China, for example, is trying to adopt a more market based carrot-and-stick approach to introducing sustainability policies. These include both penalties and incentives for technology -based solutions that are attractive to both local and in-bound investors.

China faces a major challenge in trying to reverse the damage created by its aggressive economic growth. Reportedly, in one province the smog was so bad that a factory fire burned for ten hours before it was noticed. We do not want to wait for an environment crisis before meaningful long-term changes are made.

Environmental protection versus economic productivity

In declaring war on environmental damage, China for the first time in 25 years is making major changes to its environmental protection law. Officials will be graded on measures that value environmental protection as much as economic productivity.

Officials can also be demoted or sacked if they are guilty of offending. Company officers can be jailed for up to 15 days if they have not completed an environmental impact assessment or continue to pollute after they have been warned. China has also announced plans to remove more than six million cars from the road.

Promoting smart power and green technology

There are changes to the way energy will be consumed, produced and priced to promote smart power, and green and low carbon technology. Key industries will be relocated away from urban areas along with measures to tackle agricultural pollution and water and soil pollution. Marginal farm areas are being converted to forests and grasslands, and wetlands will be protected and developed.

Regardless of your view on what’s best for New Zealand, it is evident the current methods of trying to protect our environment have had limited success.

The issue is far too important to be left to political grandstanding at election time.

We need a cross-party solution based on a partnership with business that ensures both our long-term sustainability and our continued global competitiveness.

This is the Greens’ policy. Let the debate begin.

Jo Doolan is a Tax Partner at EY New Zealand.