Friday, January 1, 2010

Lord Turner champions environmental taxes - Is it that easy?

The Guardian reports that, in an interview with BBC Radio 4 to be broadcast tonight, Lord Adair Turner will be saying:
"If we have to raise taxes – and we will to some extent – we can deliberately design those to tax bad environmental things, like overuse of fossil fuels..."
It's long been known that one of the key attractions of environmental taxes is the double dividend of:
  • generating additional tax revenues; and at the same time
  • discouraging 'bad' behaviour so as to help the fight against climate change.
I mentioned this in my post here last August: Environmental taxes - going up

The Institute of Directors' view is that:
"Environmental taxes have their place in the tax system, but there is a real danger that because they are seen as being in a good cause, they will be set higher than they should be, or will become a way of increasing the total tax take."
Er, yes. That's the idea. Most informed commentators anticipate that taxes will rise in 2010. As I concluded in August: "It seems inevitable to me that environmental taxes will rise."

The key question, which it seems Lord Turner will not be addressing, is the extent to which such taxes are eventually borne by the consumer.

One key attraction of environmental taxes is that they tend to be paid by big industrial conglomerates. Typically however they will simply raise their prices in order to maintain their profit levels. Thus the effective burden of the 'green' taxes is borne by the ultimate consumer.

One of the best ways to avoid this is to offer tax incentives to develop, produce and supply alternative environmentally friendly products which consumers can choose to buy instead.

I predict that rather than big rises in income taxes and VAT, 2010 will be the year in which we focus on green taxes and environmental taxes. In addition to those charged on businesses there will also be those intended to change our behaviour as consumers. The big challenge will be to ensure that the greener options exist so that we are not simply forced to pay the taxes for doing 'wrong' when there is no real alternative.

1 comment:

  1. But doesn't relying on environmental taxes create problems for the public finances? If behaviour does shift to greener alternatives then tax revenues will fall or, at best, be subdued. Isn't that partly why green tax revenues have declined as a proportion of the tax take in the last 10 years?

    Environmental taxes are attractive but can only be part of the solution to the deficit.