Brian Connell
MP for Rakaia
National Party Spokesperson for Forestry
Associate Spokesperson for Revenue

4 October 2004

Carbon Tax

Everyone knows we need to cut greenhouse emissions. But it’s not generally accepted that signing the Kyoto Protocol will allow New Zealand to honour our commitments and still remain economically competitive.

Kyoto will potentially lift electricity costs by 9% and petrol costs by 6%. It could send thousands of our businesses overseas and turn foreign investment into a dim and distant memory. Bottom line is simple: it will cost us big time and it won’t help the environment one iota.

It may sound dramatic, but we need to start looking at the real costs of Kyoto before it’s too late.

A recent Castalia report estimates ratifying the Protocol will cost New Zealand between $9 and $14 billion in the first four commitment periods. And this is a conservative estimate with costs likely to rise beyond 2027 if current technologies are preserved.

So how does the Government propose to combat this contingent liability? Simple, it’s going to do what it does best and dream up yet another tax – the carbon tax.

As if oil at US $50 a barrel wasn’t bad enough, strap yourselves in – you’re in for a rough ride. The Government’s carbon tax is about to hit us in the hip pocket. A Government discussion document released in 2002 estimates that petrol costs could rise by 6%, diesel by 12%, electricity by 9%, gas by 8% and coal by 19%. And remember, these are only the costs to residential users. The cost of coal in the industrial sector could go up 44%! And before the Government says these are the recommended maximum rates, I’m going to remind you that the maximum rates today turn into the minimum rates tomorrow. This is an astronomical rise so why isn’t the Government warning us?

When the Government proposed the ‘Fart tax’, the public was outraged. Why aren’t people marching in the streets to protest against a tax, which will hit every single one of us, which will cut jobs and lift inflation?

I’ll tell you why: no one knows about it. To avoid public backlash the Government is keeping a lid on this.

The public needs to be informed on how these costs will hit them where it hurts. The Government has been dodging this issue since the Protocol was ratified in 2002. A year after a carbon tax discussion document was supposed to be released we still haven’t got any more concrete information. What’s wrong with this picture?

Who will administer the tax? Which commodities will it target? Will there be any exemptions? How high will the tax be? How will it be collected – and who will collect it? Where will the revenue go?

These are just a few of the questions that need answering and they need to be addressed now. Although the tax won’t come into force until after 2007, our productive sector needs to know now if individual companies and corporations are to plan for the future with any certainty. It’s not as if the carbon tax is going to fix the environment and cool things down.

Far from it - the Castalia report also says that the carbon tax will only see us through to 2020. And the bad news is that around about then we’ll be facing a hefty superannuation bill that’s inevitably going to mean higher taxes. That’s great. We need other taxes like a hole in the head. We’re already drowning in taxes. This is just going to finish the job.

With the cost of fuel set to go through the roof it’s important that the Government does all it can to keep petrol prices down instead of creating new taxes.

If a carbon tax spells bad news for individuals, it spells disaster for businesses. They’re already reeling under the Resource Management Act, astronomical compliance costs and the impact of draconian employment laws, and may well see this as the last nail in the coffin.

New Zealand is part of Asia. Our main export competition is with developing countries that are not obliged to cut emissions under the Protocol. Australia refuses to ratify Kyoto, though is voluntarily reducing emissions and achieving great success through a private carbon credit-trading regime that this Government should have adopted instead of stealing carbon credits from the forest sector.

New Zealand – for purely ideological reasons – is putting itself at a huge disadvantage by being the only country in our trading arena to volunteer for more compliance costs. Businesses will just decamp to countries without such well intended, but destructive taxes.

The problem is compounded by our current depreciation regime, which makes it unattractive to invest in new plant. Currently businesses are reluctant to invest in new environmentally friendly machinery which will cut emissions. The Government says that new laws will be introduced in November to address depreciation problems. But whether these laws fix the problems remains to be seen. On past performance, the Government will probably crack this particular egg with yet another sledgehammer. It deserves to end up with egg on its face.

The Protocol’s environmental benefits don’t justify the compliance costs. If elected, National will not impose a carbon tax. National will re-evaluate the Kyoto Protocol ratification. National doesn’t plan to sign any more blank cheques.

End.

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