Environmental Taxation and Australia.PPTVIP

Environment Taxation for Australia John Freebairn Melbourne Institute-Treasury Conference Melbourne, June 2009 Context for Discussion Taxes to correct market failures associated with Pollution external costs Over-use of common pool resources Under-supply of public good amenity Critique of current tax system Concessions in income and consumption taxes Selective expenditure taxes (petroleum excise, motor vehicles, stamp duties) Special taxes on natural resource rents Evaluation Criteria for Environmental Taxes Efficiency Correct market failure Spill-over effects on other tax distortions Simplicity and costs, or choice of tax base Market failure means no market for direct measure vs the option of an imperfectly correlated measurable inputs and outputs Equity and redistribution Focus on economic not initial incidence Importance of current position as the base case Important in instrument comparison and choice Net revenue Largely a small by-product Pollution External Cost Correction Examples include Atmosphere: GHG emissions, smog Water: sewage disposal, salination Land: toxic wastes disposal, loss of amenity Noise and amenity Tax as a polluter pays market failure correction Tax as only one of many corrective instruments Common Pool Resources(missing market for resource stock) Examples Over exploitation of fisheries, underground water Over use or congestion of transport infrastructure Tax as a solution Efficient if T = MEC Beginning with market as status quo, involves a large transfer from private resource owners/users to government Common Pool Resource Challenges with Congestion MarketFailure Correction Required first-best measures of congestion involves tagging vehicles by location and time. Low cost technology on horizon. More readily measured associated inputs, eg fuel or vehicle, are not highly correlated with congestion. City cordons and pricing as an in-between option Possible strategy: rather than introduce second best measures soon, wait for meas