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Government should consider case for Ecological Tax Reform, says The Tax Specialist

Publication date: 20 Aug 97 | Source: THE TAX INSTITUTE

There is scope to restructure the present tax system in ways that promote greater employment and discourage environmentally damaging activities, according to The Tax Specialist.

The Tax Specialist article by Dr Clive Hamilton titled Ecological Tax Reform - Sustainability, Equity and Growth, stated that these reforms are aimed at shifting a large proportion of the taxation burden from value adding activities (employment, enterprise and investment) to value subtracting activities - energy and resource use and the associated creation of wastes and pollution.

"At the broadest level, ecological tax reform (ETR) is an attempt to balance ethical principles - sustainability and social justice. The significance of the new work on ETR is that it shows that marked improvements in environmental quality and higher rates of economic growth and employment can be had simultaneously," said the author.

"The biggest source of tax revenue for any ETR packaging is likely to be taxes on energy use and greenhouse gas emissions. Studies (such as the one conducted by the Industry Commission in 1991) have shown that large reductions on CO2 can be obtained for quite small impacts on GNP growth."

"And these sacrifices in GNP growth may be a small price to pay if you consider recent studies of the cost of global warming which suggest the cost of climate change could be very large indeed. One European study estimated the cost of global warming at 1.6 per cent of national income for each degree of warming," he said.

A number of modelling studies have shown that 'recycling' the tax revenue from carbon and energy taxes through reductions in payroll and investment taxes pays a 'double dividend' by improving environmental outcomes and stimulating growth in output and employment.

The importance of these studies is that they decouple the process of economic growth and environmental degradation and indicate that with the right choice of policy instruments, saving the environment does not have to be at the expense of economic growth.

"There are, however, a number of obstacles to the implementation of an ETR package in Australia. These include perceptions of its effect on competitiveness, the cost of structural change, the problems of co-ordinating revenue raising and spending at Federal and State levels, and bureaucratic inertia and its failure to distinguish between commercial and public interests," the author said.

Despite these and other political obstacles (highlighted in the carbon tax debate in 1994), the appeal of ETR will increase as the need for more serious measures to tackle environmental degradation becomes increasingly apparent.