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Editorial - Tax question

AN article I wrote last week on the Federal Government’s plans to place an environmental levy on plastic shopping bags has highlighted a number of issues — including a pet subject of mine, taxation.

While the Government’s threat is interesting in other ways, such as whether this is really a huge environmental issue and just how such a decision was arrived at, I am fascinated by the use of tax as a tool to shape behaviour.

Tax has been used since biblical times as a means by which social administrators have financed their activities. In the old days most tax was a levy on production (such as a portion of a crop) or tax on trade (generally extracted by those in control of trade routes or the markets at which goods were sold). At a higher level an annual stipend was often paid by one level of administration, such as a large landholder or regional principality, to an all-encompassing power, such as a king or emperor. Later, as labour was organised and corporations became administratively sophisticated, governments unfortunately learned to tax income.

Just when tax became a weapon to discourage certain actions I am not sure (perhaps some thoughtful reader can help me out).

These days there are numerous examples of government imposing costs upon consumers to control consumption.

We have petrol taxes to encourage efficient use of energy, we have cigarette and alcohol taxes to discourage harmful use of these products and, potentially, we could have a levy on shopping bags to stop us taking them from the checkout. To me, even the Multanova fines are just a taxation weapon against speeding.

Part of this taxation, it could be argued, is more than just discouragement. Parts of these taxes may represent the true cost of consumption — where burning fuel allegedly creates global warming and smoking cigarettes increases the cost of health in the future.

In that sense, I am not opposed to such taxes both for discouragement, with the aim of complete removal, and to remind the consumer of the true cost. But these must be the real objectives.

For a tax of this nature to be imposed, society must agree that it is desirable to end whatever practice is targeted (speeding or smoking) and that the tax does go towards paying the cost of consumption.

Unfortunately, despite high ideals, the taxes imposed rarely achieve those objectives. Instead, it appears governments get hooked on the revenue they derive.

Take fuel for example. There is no doubt that high petrol taxes, as well as the odd oil shock, prompted consumers to demand more fuel-efficient cars.

Small taxes on low petrol prices had a remarkable effect because in percentage terms the public noticed the difference.

But as governments need more money they increase the levies on fuel and, as each incremental rise becomes less significant on the total cost, users have become largely tolerant.

A decade ago a five-cent rise in petrol prices was a national issue — these days the price fluctuates by 20 cents or more in a month — yet we drive on.

And that is the point I am making. Tax impact on supply and demand creates a new equilibrium — and government finds the tax revenue more important than continuing to solve the issue that forced it to levy the tax in the first place.

In fact, the government relies on us to continue our vices.

Imagine how hard government would be hit if a new invention made solar power viable and everyone stopped buying petrol? It could not be afforded! We’d have to tax the sun.

Why can’t we afford it? Because the fuel tax money is not used to solve environmental problems created by fuel use, it is simply a convenient tax imposed on drivers at the bowser and used to pay all types of government bills.

So, is the plastic bag levy a cynical example of this?

If the government adds a 25-cent levy and achieves its stated aim of halving the 6.9 billion plastic shopping bags used each year in Australia — it will raise revenue of about $860 million. Very handy indeed. How much of this will be used to deal with environmental issues such as plastic bags littering our land, because they will still be out there?

What is the cost of this problem and how was 25 cents derived?

The cynic in me suggests that this figure was not calculated to end consumption of these bags — just to measurably slow consumption (so government can show how their taxes work for the good of the community) and generate a healthy new income stream.

If you really wanted to end plastic shopping bag use, you’d make that figure much higher — but if you did that, you may as well just ban them.

And if you don’t really want to get rid of them (and government rhetoric suggests this is not the stated aim), they can’t be all that bad, can they?

Nope, it’s about finding new revenue streams with a justifiable cause.

Otherwise we might all start to think payroll tax and income tax were actually discouraging employment and work. Of course they aren’t, they just show how governments try to squeeze the most out of you while making sure you keep doing that revenue raising activity.

Occasionally, of course, they get it wrong and it actually works a little too much.

WA’s payroll tax adjustments this financial year might just have the unintended effect of discouraging employment — and that means someone in government got their sums wrong.

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