14 April 2009

The Taxpayers' Alliance - Still Missing the Point on Green Taxes

I commented on the TPA's stance on green taxes last year [1] and it seems they've still got a bee in their collective bonnet about them, as they've produced a Green Tax Calculator which is designed to allow people to work out the amount they pay annually in green taxes [2].

The TPA positions itself as a "low tax" campaign group, which is something I'm broadly in favour of, but when it starts focusing on specific taxes, such as green taxes, it isn't criticising the overall level of taxation, it is criticising the tax mix, which is a completely different proposition.

If they are so convinced that green taxes should make up a lower proportion of the overall tax take, I'd expect them to give some solid reason why they are inherently worse that Income Tax, VAT, NI, etc. Unfortunately, that is something they haven't seriously attempted.

What I find really odd is that they've chosen to release figures which paint a picture which is at odds with their message. If you believe their figures (to be fair, I've no reason to believe they are inaccurate), then the average person pays £740 in green taxes per year. In 2007-08, net taxes were £515.9billion [3], which equates to approximately £8,500 per person, so green taxes make up a single figure percentage of the total, which makes them appear a poor choice of target for a group looking for low taxes generally. Even a worker on a wage well below the average is likely to be paying significantly more in income taxes than in green taxes.

Of the £740 figure, over half (£496) is fuel duty. As a way of raising revenue, I think fuel duty is one of the better methods; it produces some significant positive externalities, such a encouraging the use of more fuel efficient vehicles and going some way towards pricing the scarcity value of road space. If that £496 were to be raised by taxing income instead, the positive externalities would be lost and I can't see any that would replace them. If you earn money, it doesn't create any negative externalities for me, so there is no particular reason I would want the tax system to discourage you from earning money.

The other advantage with fuel duty is that it is much easier to administer. It doesn't require that every company has a knowledge of the system in the way that income tax does, so it creates less of a regulatory burden. There is also much less scope to evade fuel duty than there is to evade income tax, so it needs fewer public sector staff to administer.

Of course, the TPA might argue that they would rather have the £496 removed from the tax burden altogether than transfered to income tax, but that still wouldn't explain why it should be fuel duty that is reduced rather than income tax.

1. http://plockett.blogspot.com/2008/08/green-taxes-how-to-completely-miss.html
2. http://www.taxpayersalliance.com/research/2009/04/new-online-green-tax-calculator-launched-average-person-pays-740-in-green-taxes-and-regulations.html
3. http://www.hm-treasury.gov.uk/d/public_finances_databank.xls


Mark Wadsworth said...

Agreed, in particular on fuel duties. They pay for roads etc, encourage efficient use of scarce resources (oil and roads) and finally, demand for fuel is price-inelastic, so it raises money without distorting people's behaviour too much.

And yes, I do drive a car (at weekends) and I don't believe in MMGW. So what?

DBC Reed said...

The problem with fuel duty is its so regressive: some poor sod who's on short-term contracts and who has to drive all over the county for work (I live in the sticks),pays more in tax than somebody who does n't really have to work at all.
LVT is the be all and end all in this situation:making people pay back the money that comes their way from a nearby motorway or improved commuter railway expressed plainly in their property value.

Paul Lockett said...

I'm not so sure about that. In many cases, living a long distance from where you work is a lifestyle choice, so shifting tax from income to fuel duty eases the burden on those who work near where they live and increases the burden on those who live further from where they work. In general, I suspect that higher earners on average travel further to work than lower earners, so the shift could actually end up being progressive rather than regressive.

I'm completely in favour of LVT, but, as I've said previously I think it's preferable to capture the cost of services through user fees and keep land values low than to provide services below market rates and allow land values to inflate.

In some respects, LVT and fuel duty are both partial solutions to road management; LVT reflects the location but not the activity, whereas fuel duty reflects the activity but not the location. The only practical method I can think of which would reflect both factors through market based pricing would be privatising the operation of the motorways, but failing that, a combination of fuel duty and LVT is probably the best option we've got.