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National's carbon tax

4 May 2005

National's carbon tax

"The National Party has identified five key policy statements as critical but achievable steps in its next term of office." So says the current National Party policy statement on the website of the BlueGreens.

One of these five policies is to introduce "a fiscally neutral, low level carbon charge."

The BlueGreens are led by Nick Smith. Last November, National Party leader Don Brash roundly endorsed the BlueGreens when he said in his speech to them: "The strength of the BlueGreens is bringing our economic and environmental policy strands together. Its all too easy to be focused entirely on economic policy without considering the environment and vice versa." He also said: "I also endorse the approach of extending the use of market mechanisms," and: "We need, wherever possible, to give people the right incentives to do the right thing by the environment."

The plan to introduce a carbon tax meets all Don Brash's aspirations.

The policy paper goes on to warn against failing to take action: "If New Zealand does nothing while awaiting the completion of negotiations, emissions will continue to rise as will the future cost of reducing them. A low level carbon charge (tax) would send a signal about the future price of emissions that would, at the margin, influence future investments in energy generation and investments which influence energy use."

The paper also says: "The introduction of a charge would also lend credibility to New Zealand's negotiating position which has been strenuous in calling for least cost, flexible solutions."

"Don Brash has the opportunity to prove that he takes the threat climate change poses to our environment, way of life and economy seriously. He should put aside his natural instinct to oppose this just for the sake of being different from Labour," said Convenor of the Ministerial Group on Climate Change, Pete Hodgson. "In November he acknowledged the need to combine environmental and economic policy. He now has the opportunity to do the right thing by the environment by supporting this policy. I hope he has the courage to do so."

More:

http://www.bluegreens.org.nz/policyobjectives.htm http://www.bluegreens.org.nz/5greening.html
Text from http://www.bluegreens.org.nz/5greening.html

5. Greening the Tax Base

All taxes distort incentives and thereby alter patterns of production and consumption. In New Zealand, the bulk of taxes are levied on income and consumption. Income tax, at the margin, makes work less worthwhile. GST makes consumption more costly. Given that a given level of taxes must be raised and that any form of tax will have more or less desirable side-effects, it is a fair question to ask whether the current mix of taxes on income and consumption generates the best possible incentives. The case for greening the tax base rests in the proposition that if we have to raise taxes, we should do so in a way that minimises harmful side-effects of economic activity (bads) rather than positive attitudes to work and productivity (goods).

PROPOSITION National commits to reducing income tax and other distortionary taxes, by shifting the emphasis of tax progressively on consumption that has environmentally harmful side-effects commencing with a fiscally neutral, low level carbon charge. The ultimate intention would be to remove company tax altogether.

Rationale New Zealand is required to stabilise its greenhouse gas emissions under the Framework Convention on Climate Change (FCCC). It has been determined that this should be achieved in a way that imposes the least economic costs. This means that, unlike any other country, New Zealand has rejected any form of subsidies or sweeping regulations to alter behaviour.

Voluntary agreements are proving educative but largely ineffective. Only economic instruments remain and since none have been imposed, we have done less than any other developed economy to make progress towards our commitments.

It is agreed that a system of tradable emission permits would be the best solution, ideally on an international basis. Designing such a scheme is complex and depends on the outcome of incomplete negotiations.

If New Zealand does nothing while awaiting the completion of negotiations, emissions will continue to rise as will the future cost of reducing them. A low level carbon charge (offset by the reduction of other taxes) would send a signal about the future price of emissions that would, at the margin, influence future investments in energy generation and investments which influence energy use.

The introduction of a charge would also lend credibility to New Zealand's negotiating position which has been strenuous in calling for least cost, flexible solutions. It would also provide a credible basis for removing CO2 emissions from the ambit of the Resource Management Act.

ENDS

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