Smart Tax Ideas
February 25, 2008
Most of us already accept the wisdom of tobacco taxes which have the dual benefit of raising revenue and discouraging consumption of a product that places enormous costs on the health system.
In contrast, critics oppose the taxation of income and other desirable social outcomes and argue that our tax system should more effectively target undesirable activities and outcomes.
Dr Nicholas Gruen of Lateral Thinking advocates a reduction in taxation distortion by levying tax on bad things such as pollution and congestion. The resultant revenue could be used to reduce taxes on activities we don’t want to discourage. Stated in a another (rather lame) way: we should tax ‘bads’ not goods.
The recent international trend towards pollution taxation seems a clever application of the ‘dual benefit’ principle and such taxes are undoubtedly focused on one of modern society’s greatest challenges.
Carbon trading schemes are a close cousin to a pollution tax - provided the permits are sold rather than given away. So, the greenhouse gas emissions trading scheme which is scheduled for introduction in Australia in 2010 will be a major example of tax on bads.
An internationally far less common tax target is traffic congestion. Yet, traffic congestion is already a scourge for cities across the globe.
The case for taxing traffic is strengthened once the actual economic cost of a traffic jam is calculated. Congestion not only results in millions of hours of lost productivity, but there are also major car maintenance, fuel and environmental costs.
Ross Gittins wrote in the recent Sydney Morning Herald article that inspired this post that when you head out on the road “you also impose costs on others - you’re a “polluter” in the sense that, if you weren’t there, those in front and those behind you could be going faster”.
He cited a Bureau of Transport and Communication Economics estimate that in 1995 congestion in Australia’s capital cities cost about $13 billion a year - with Sydneysiders bearing nearly half the total. Any road commuter will confirm that 1995 is back in the ‘good old days’ when it comes to Sydney’s traffic snarls.
Singapore and London already tax the use of certain roads and city areas as well as peak hour driving. In effect, those who insist (or are compelled) to travel during the peak periods pay for the congestion cost they impose on others.
Perhaps it is unfair to some, but it does reduce the need to tax other activities. Not such a bad outcome when all things are considered.
| Photo by beggs |