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Carbon tax: all stick, no carrot?

Thursday, 10 April 2014   (0 Comments)
Posted by: Author: Kevin James
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Author: Kevin James (BDlive)

A carbon tax, if used as a stick, would work if complemented by a proper carrot. However, there is no commitment from the government to ring-fence revenue from this tax and use it, as it should, to spur meaningful growth of the green economy.

So right now the only carrot to be gained is to avoid being hit by the stick, which makes it simply a punitive tax.

Let’s look at the carbon tax levied on new cars since 2011. For every new car that emits more than 89g/km there is a tax. To date about R5bn has been collected. Car buyers’ behaviour has not changed materially.

Imagine if the R5bn was used to reduce the price of cars that emitted less than 89g/km. This would be a big carrot to make low-emission cars more affordable, and it would influence buying behaviour. It is a lost opportunity. The proposed carbon tax as it is now structured will be more of the same.

Taxes can be levied in two ways: top-down or bottom-up. Until now, all carbon taxes have been levied top-down by slapping a levy on oil and electricity at source. Now the government is proposing a tax on a bottom-up calculation where all liable parties need to comply with mandatory reporting according to a framework that is not yet defined.

Given where most companies are with their carbon reporting, it will be a challenge for them to provide an accurate and verifiable inventory of greenhouse gases on which to base the tax, by the time the tax is implemented.

Furthermore, the administration of such a bottom-up tax could be a nightmare, given the skills and experience required by the Treasury to do so. E-tolling is a good analogy, where the idea is to convert a top-down levy on petrol products into a bottom-up, user-pays tax. The result is disproportionate administration costs and a massive extra burden on business and citizens.

The Treasury must stop trying to disguise what amounts to just another tax as an environmental tax. It gives environmental taxes a bad name and builds resentment among citizens and business because it is expensive to administer while the money is not spent where it should be — on reducing the carbon footprint of the country and promoting greener business.

Rather just put an additional levy on electricity and petrol, which would be easy to collect and even easier for the government to spend on whatever it chooses.

If there is indeed an authentic intention to green the economy, reduce greenhouse gases, introduce clean technology and clean up waste by changing behaviour, then the government must ring-fence the funds collected and spend it all for these purposes.

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