Session 3: Environmental and Social Taxes
Okay, folks, here we go again. The good news is you know the drill now. Environmental and social taxes. Wandering around the group talking about this, I never thought there was so much interest in our road system. Mr Oakeshott will understand that alcohol was not discussed. Alcohol actually is formally on the agenda, so for those of you would have an interest in it, it is specifically on there as an agenda item. As per the last two sessions, we're going to start again with three presentations to get us going.
John Freebairn from the University of Melbourne is going to kick us off.
Thank you. This is where we move to where taxes are good for us whereas most other taxes on labour and capital has some adverse effects of the particular stories that I'm going to cover, which are road congestion, pollution, alcohol, tobacco and, perhaps, gambling. These are really cases where there are external costs or market failures where the deal between two people doesn't take into account all of the costs. By and large we do have taxes on these, transport, alcohol and so on, but they've been around for about 100 years and they're not really doing what they should do.
So if we think about taxes on transport, there's a Commonwealth excise, there are state registration fees, there are state vehicle stamp duties, there are state parking fees. They collect in the order of about 20 billion dollars a year. If we go to the Henry Review, how should we reform that. Well, taxation of motor vehicles in my view has at least four purposes. One, as a user pays a fee for Government(?) before provided roads and policing and that sort of stuff. As a police charge, as a congestion charge, they're just the three.
What would you want as a user-pay fee for roads? You essentially want a fee that's tied to the damage that transport does to the roads. So that would depend on the kilometres travelled per year, the vehicle weight and on the state of the road. Now, we're starting to get to the stage with some of the big trucking companies where they know exactly where their trucks are, what weight is on them and what sort of road they go on. We can start to move to a real user-pays fee.
In terms of pollution charge, this is for emissions of greenhouse gasses, and I will come back to that in terms of the discussion of the clean energy future.
The big interesting challenge in road transport is the charge for congestion. Estimates by the Bureau of Transport and Regional Economics suggest that congestion is costing in the order of 20 billion dollars a year. The sort of spill-over cost is when I go on to the freeway in the morning peak hour, I slow myself down a bit and that pisses me off and I pay for it, but I also slow down everybody else on that freeway and I don't give a stuff about that. That's the external cost. So what we would need to do in an efficient way is move some of the people off that freeway who don't value it quite so much and let those who do value it move over quicker.
Now, again, can we do that? Well, on most of our tollways we could charge the fee we charge whether it's peak or off peak. Sydney Harbour Bridge got us started on that. The question is, can we take it a little bit further with modern technology. Again, I think this is something that we should investigate.
A second area is more in this environmental area of external costs, and so the big one is greenhouse gas pollution when we combust fossil fuels, whether it's coal, gas or petrol, and when our animals go around burping out methane. Now, clean energy future goes quite some ways in setting up a carbon tax to start off with, starting in June/July next year, and then verging on to an emissions trading scheme in 2015.
If I looked seriously about how to reduce carbon pollution, I wouldn't accept that current model. Yes, it picks up all the electricity generation, but it only picks up a part of the combustion of petroleum products. There seems to be an assumption in this current one that primary producers and you and I driving small vehicles don't contribute to greenhouse gas emissions. If they were truly serious, they would have applied it to all fossil fuels.
Also, we know that if you put a price on carbon, you can then get rid of all the regulations, such as the renewable energy target, forcing us to put fluorescent lights in and so on. Data suggests that we can half the costs by just sticking to a promise. For some businesses, that would simplify life for you quite a deal. So, yes, we're moving in the right direction, but we could do a lot better.
What's also interesting in that environmental tax is it's a net increase in Government indirect tax revenue, roughly eight billion dollars a year. About half of that revenue has been recycled to households, to workers as income tax cuts, to Social Security people as one-off increases. That makes a fair bit of sense. But just to make some(?) of the spin stuff coming out of government, we're told that we actually trebled the tax-free threshold from 6,000 to 18,000 a year. The reality is with the low tax offset it is effectively 18,000 and they've moved it up to 20 thousand and a half. Yes, they've increased, but they've oversold the story and I don't think that helps your case in the long run.
Now, let's go to alcohol. Currently we've got, I don't know how many different tax rates on beer, it depends on whether it's low-strength, middle-strength, high-strength, whether it's draught or whether it's bottled. There seems to be an assumption that if you drink bottled beer you create twice as much damage than if you drink draught beer.
Wine globalisation tax, which if you drink Grange you cause 20 times the damage than if you drink another variety. That doesn't make sense. As the Henry Review suggested, what you want is a tax per litre of alcohol that's roughly the same on every form of alcohol. Government's suggestion is, well, we couldn't really sort the wine industry out because they're going through structural changes. Well, it's a bit like the discussion we had this morning. The tax system is not a good instrument for handling structural change. There are various firms within each industry and region who are often doing very nicely, so it's a very blunt instrument and it will get us into trouble.
Tobacco, I think we've probably got the story not far from wrong.
Gambling, a contentious issue at the moment, states are heavily dependent on gambling revenue, but I think as the Henry Review says, taxation is probably the wrong estimate to come to grips with problem gamblers; you need to do something else.
The final comments I would make on these special taxes is how do they fit into the rest of the tax system. Well, they're basically designed to represent the social cost of, say, driving around causing pollution or of consuming alcohol and doing damage, the GST should go on top of that. It's not a tax on a tax; it's keeping the social relative prices in good shape.
For business who have to purchase inputs that have some of these environmental taxes on it, that reflects a cost to them and a cost to society. That should be a legitimate deduction from business income.
The third and last comment is, if you get the tax right on all these external costs, you then don't need to hypothecate the revenue for some other expenditure program. It should just go into general consolidated revenue. That's a windfall gain the governments are happy to have but leave it at that. Thank you.
Thank you for that. There's only one thing I have to disagree with you there. I did have a couple of glasses of Grange and compared to the other, it does do 20 times the damage.
To Charles Berger from the Australian Conservation Foundation.
John gave us a good introduction to environmental taxes, or at least a few of them. I'm going to talk about a slightly different category. I'm going to spend most of my time talking about anti-environment taxes, which has the opposite effect. They send the wrong signal to us about desirable environmental goals that we want to achieve. They counteract common and agreed environmental objectives.
An example of this, I want you for a moment to put yourself into the shoes of a small business owner who is facing an investment decision. Let's suppose that the small business has to replace a hot water system and there are two options available, one is a solar hot water system, the other an electric hot water system. The solar hot water system is much more efficient, produces nearly no greenhouse emissions, but the electric system is not as efficient because it generates heat from electricity over the grid which often causes quite a significant amount of greenhouse pollution.
Now, suppose that the total investment and operating costs of these two systems before taxation considerations is equal and now I want to throw tax into the mix. When that small business owner picks up the phone to his or her tax advisor and says "Are there any tax consequences I should be aware of?", a good advisor will say two things. First of all, to say "Well, for the electric system more of your costs are operating costs as opposed to upfront capital investment. Operating costs are from a tax perspective better, so the more that you can load up on operating costs rather than upfront investment costs to be depreciated over time the better". The net result of all of that is it's a skew towards the electric hot water system which has a higher proportion of operating costs versus capital investment costs.
The second thing, on the capital investment side of things you can depreciate that electric hot water heater over two years but you have to depreciate the other heater over 15 years. Why is that the case? Ironically because the solar hot water heater is more durable than the electric, but there's a tax penalty there as well.
Now, on a $50,000 investment decision, those two tax considerations equate to a skew of two to three thousand dollars towards the electric water system and away from the solar hot water system. From our perspective that's a bad environmental outcome because it reduces the incentive for efficiency, actually skews our choices towards the less desirable environmental choice, but it's not only bad for the environment, it's bad for business, it's bad for the business owner who wants to do the right thing and buy the solar hot water heater system, it's bad for the producers of solar hot water systems who are trying to come up with this new and innovative technology and get a market going for it in Australia.
It's even bad for the producers of electric hot water systems who may want to transition to a better and more modern technology but who are inhibited from doing so because the market is all skewed towards electric systems. Finally, it's bad for my son who is two years old, it's bad for his future in 2050 and 2100 when change starts to kick in. It's bad for our economy and it makes sense to get rid of these rules.
I've given you a single example here. In some ways that's a bit of minutiae about our tax system, but the more you look the more you find. If you want to invest in a bicycle, four to eight years; if you want to invest in aircraft, you depreciate over seven years; rolling stock for public transport, 20 to 30 years. The more you look, the more you find the level playing field is skewed against the environment and against good sound economic business interests.
Now, businesses here are saying today we want efficiency and productivity. So do we. We want to ensure the ongoing productivity of our national systems in Australia and we want to ensure the efficiency of our natural resources. The economists are saying "We want to see a level playing field". So do we. We want to see good, green technologies on a level playing field where the full costs of damaging activities are factored into market prices. The tax system plays an important role there. Businesses here are wanting certainty here as well. So do we. We want certainty about our ecological future.
There are other examples here. This morning I spoke briefly about accelerated depreciation for the oil and gas industry. There are other categories of assets that benefit from this as well. It's another example of where there are good, quick, clean, easy reforms that can improve economic effects(?) at the same time as they're reducing environmental impact.
I want to mention just three more categories of reforms, and I expect to go into them in further detail. They all involve instances where markets are failing us and failing us seriously. The first area is in housing and we heard quite a lot about the overinvestment in the top end of the housing market and some of the consequences that that has. That has bad impact on our urban form. The more that housing prices in already developed urban centres go up, the more there's pressure to release more land on the urban fringes, and we know from hard experience in Melbourne and Perth and south-east Queensland and Sydney that that pressure comes at the cost of already highly stressed ecological systems.
We would like to see housing affordability improved. We think that has a good ecological outcome as well as a good social outcome. At the end of the day official(?) housing is sustainable housing.
The second area is in the area of road pricing and congestion, and John has already alluded to it, but there is a whole complex bundle of perverse incentives that are built into our transport systems, and the fact that folks are sitting in traffic jams during peek hours in our major cities is one example of that. I might leave it there.
We will come back to these questions about housing, but can I just stress the absolute importance of our ecological systems and looking out not only over the next 10 years or 20 years, but over 50 years and over one hundred years because those are the timeframes that ecological effects are playing out.
[indistinct] from the Australian Council of Trade Unions.
I will just touch on a couple of things. First I would like to say that Australian trade unions recognise the importance of social and environmental taxes. As the Henry Review states, they can improve market or social outcomes, they can counteract self-control problems and can improve efficiency through appropriate price signals.
As a nurse myself for many, many years, I have seen only too closely the tragic human cost of the adverse effects of addictions to cigarette smoke and alcohol, effects that can be prevented, and the tax system can play a significant role in that prevention. I've also seen the actual cost of providing medical and social support to those affected, costs that are born in the majority by all of us through the tax system.
The trade union movement accepts the global consensus that climate change is real and urgent action is needed to retard(?) carbon emissions. As the Prime Minister said, all taxes must be fair and efficient and environmental and social taxes are not exempt from that test.
There is a great deal of focus, for example, on road congestion taxes, and while less cars on the road is needed, we must be cognisant on the impacts of those who rely on transport for a living and may not be able to pass on or bear extra costs as is assumed in the review.
We don't want drivers forced into working unsafely to recover extra costs. Such a tax without first a suite of initiatives such as significant investments in public transport upfront might, indeed, be neither fair nor efficient for some.
On the important environmental issue of lightly change, the ACTU supports a strong-based emissions trading scheme with a strong emissions reduction cap and a suite of measures as one of the essential tools to drive long-term structural changes in the Australian economy but also as an important step in laying the foundation for real action to tackle climate change. We believe that the package can protect jobs, particularly in special industries, can promote investment in the creation of new jobs and industries and assists the majority of households in meeting costs associated with the introduction of the scheme. A price on carbon is the most effective mechanism for underpinning the commercial viability of low emission technologies, driving the adoption of clean-energy technologies and investment in energy efficiency improvements.
We believe that acting without a price on pollution will, indeed, require more real resource expenditure to achieve the same pollution reduction objectives. It also gives clear signals and long fore-certainty for business. Having said that, it is important to emphasise that it is both the carbon pollution price and supporting measures that will reduce emissions and begin to unlock low pollution investments.
Unions have called for sustainable industry policy for climate change. This encapsulates the suite of policy measures that maximise competitiveness and job growth from the transition to a low-pollution economy. The Clean Energy Future package incorporates a range of programs that will assist with this, the 1.2 clean technology program and others.
Finally, we also support the ongoing role of the renewable energy target of 20 per cent by 2020. The package includes a number of measures to improve energy efficiency, and one important one is a commitment to undertake work on a national energy satisfaction initiative. It is an important complementary measure to the carbon price. It will address issues that are separate to the carbon price, including flaws in the way energy networks are regulated, knowledge and behavioural barriers that prevent households from investing in efficiency and will reduce red tape associated with differing state-based schemes.
It should apply to commercial, industrial and residential electricity and gas use and work on the NEZI should be fast-tracked to replace existing and planned state energy efficiency schemes. With respect to the household assisted component of the Clean Energy Future package, we believe it contains a progressive set of reforms to the personal income tax and Social Security systems, notwithstanding how you measure that, and we believe that these will deliver tax cuts to low and middle income earners. As you know, the ACTU supports further reform in this area and have been very public about that.
In conclusion, the ACTU rejects the assessment that the actions necessary to move to a low-pollution economy will damage the economy. Under a carbon pollution price GDP will continue to grow, jobs will continue to grow and wages will continue to grow.
Furthermore, the switch to a global low-carbon future will create multi-trillion dollar markets for low carbon and clean-energy technologies. Australia needs to ensure that its current and future industries are competitive in a low-carbon economy. The points I have touched on today will assist this.
We need to narrow down here if you like the results we have highlighted. I know a lot of you [indistinct] in alcohol and tobacco. Rules the same as last time. For those who have not been up the front, press the button on the mic, please speak clearly into the mic.
Bob, I think you wanted to say a couple of words on the big picture.
I would agree that the price on greenhouse gasses should apply right across the board. It's an argument that we have temporarily lost, but it's very important to understand that the carbon pricing effort now is to reduce costs down the line, as Nicholas Stern has pointed out, 1 per cent diversion of GDP now to deal with carbon price is going to save our grandchildren five to 20 per cent diversion of their GDP to deal with the onrush of destruction of climate change, including the loss of the Great Barrier Reef, which is a six billion dollar annual business, in the lifetimes of some people in this room on current projections.
That said, the issue of transport, we come to a huge fossil fuel rebate system which should be removed. This on various estimates is in the area of five to ten billion dollars per annum. Yet a fossil fuel rebate system which has perverse outcomes, it may lead through the deaths of cancer of 300 people in our bigger cities per annum and that's not factored in and it should be.
If we would accept the farmers, we would see the removal of fossil fuel rebates and that five billion dollars being put to a whole host of social and environmental goods, including improving public transport. Along with the treasury-recommended super profits tax on mining, we see these as opportunities for funding a sovereign wealth fund, and if we're going to have high speed rail in this country with quite significant environmental and social benefits, we believe that the current boom ought to be providing the money for that into the future. If not, where else is it going to come from.
The issue of congestion tax, we agree with that, it needs coordination at state, but therefore at national level, and what about a national container deposit system as in South Australia and the Northern Territory. Great for job producers, good for the environment, good for small business, but we do not have that instituted at a national level.
A couple of smaller things. We know overweight and obesity costs the economy directly eight billion and indirectly up to 50 to 60 billion dollars per annum so we should be looking at the Danes saturated fat tax, 3 per cent as a means of not only reducing the direct health impact but giving funding for dealing with a problem that is going to reduce life expectancy in this country. We should get rid of duty-free tobacco at airports, and alcohol as well. I'm not recommending we get rid of that, but I think tobacco is the priority. It seems incongruous that we're having the packaging alteration but not dealing with that one, entry to the country.
We ought to be taxing the pollution of the air, the water and the loss of habitat on the land. We’re the country with the greatest onrush of destruction of biodiversity on earth. Thirty per cent of our birds will be gone by the end of this century. Governments are giving breaks to those who protect the land, looking at the other side, which is to stem the tide of destruction of ecosystems and habitats which is leading to that awesome outcome.
Thank you. To narrow us down, let me know when you want to participate and I will try and get around as rapidly as I can. Road transport is clearly a big part of this segment, so Harry Clarke, La Trobe Uni, could you tell us what your belief is around this issue.
It's always difficult talking after John Freebairn because I agree with him most of the time. So I thought I would just present some arguments for congestion pricing, I think, and flesh out. I think I could talk about heavy vehicle pricing, insurance reforms in much the same way as current insurance reforms. It seems to me there's a real strong case for thinking about comprehensive congestion pricing in the eastern capital cities of Australia, at least.
Firstly, we know we've now got a good understanding of congestion costs and what creates congestion costs and we know that congestion costs associated with bottlenecks, with lack of reliability of journeys, is much higher than we believed in the past. We also know that the cost of not addressing congestion is enormous, so we know roughly that congestion costs will double in Sydney and Melbourne through to about 2020 if we don't address the issue, so the problem is already severe, it will get much more severe.
We know that the costs of dealing with this problem of developing technologies to address this problem are at an all-time low. These are now mature technologies, GPS, gantry-based technologies, you can pick these on the basis of cost benefit studies. It's not a big deal, you just pick the best option and they're cheaper than ever.
We've got lots of experience from other countries that can guide us in doing this kind of thing. In the past we only had Singapore; now we've got the experience of London, Stockholm and we're going to have the experience of the Netherlands, so we can learn a lot from those experiences.
We also know a lot more about trying to improve the community acceptability of these kind of policies. We know it's silly to argue for efficiency-based reforms if no-one is going to accept them. For example, the Stockholm and the Netherlands schemes have involved trials, people have been given the chance to test these schemes and then have a referendum or a vote on them, and that was a great way of getting people to open their minds to the possibility that these types of schemes might be useful.
Why do I favour comprehensive pricing rather than old-fashioned kind of cordon pricing schemes? Basically because the Australian cities are big sprawling North American-style cities. You've got lots of congestion in the hinterland of the cities. One of the most congested intersections in Melbourne is on Springvale Road and it's 30 km from the CBD, so you do need comprehensive reforms.
I agree with most of the points that John made, but I just want to put the argument that quite apart from the revenue implications, there's a really strong case for thinking about congestion pricing of our major east coast cities.
I've chosen to focus my remarks on the luxury car tax, a tax that is increasingly being served up to the unwitting common man. The tax was introduced in 2000 along with the GST. It bears two thresholds, a general threshold, which is at which the tax is triggered and that's currently around $60,000, and a low-fuel consumption threshold of $75,000, and that's for vehicles which will deliver around seven litres for 100 kilometres or better.
The luxury car tax adds 10 per cent to the price of an eligible vehicle, but in reality the luxury car tax is a tax on the introduction of advanced safety and environmental features in the Australian motor vehicle market. The incidence of the luxury car tax is growing rapidly. The proportion of new vehicles exceeding the luxury car tax threshold grew from 2.9 per cent in 1979, and the tax being in operation at that time, to 14 per cent in 2010. In consequence, the luxury car tax now applies to many popular family vehicles as well as vehicles commonly relied upon by people living in rural and regional areas of Australia.
For example, the luxury car tax is payable now on the purchase of a Holden Commodore and Ford Falcon variants. You pay it on a Toyota Land Cruiser and Prado, Mitsubishi Pajero will cop the luxury car tax as does the Land Rover Discovery and the Lexus 250 just to name a few.
The luxury car tax threshold is indexed annually, but this approach excludes the price impact of many new features. For example, electronic fuel injection excluded, ABS brakes excluded, electronic stability control, that's out as well, and on-board climate control. All of those features add costs to a vehicle, but they're not accounted for in the LCT threshold.
Therefore, in reality the luxury car tax threshold bears little relevance to actual movements in new car prices over the 11 years since this tax was introduced. The fact is the luxury car tax threshold has barely increased over the past decade from just over $55,000 ten years ago to $60,000 now. That's a 3.6 per cent increase in the tax threshold, the trigger, over 11 years. By contrast, had the luxury car tax threshold been indexed to, say, average weekly earnings, the rate that most people base their capacity to afford a new car, over a similar period, the tax would now only be payable on vehicles selling for around $85,000.
The luxury car tax should be abolished. I must say, this tax - this was recommended in the Henry Review. At the very least if you won't abolish it, Treasurer, please think about it. It should be redesigned to encourage reduced CO2 emissions from genuine luxury vehicles, not the sort of car that the average person wants to buy and, perhaps, at a base of around 100,000 a year. Thank you.
Are you able to say that's rubbish?
LIN HATFIELD DODDS:
I wouldn't be that impolite. I sit in the community sector and I'm here at the Tax Forum hoping for a better deal for Australia's most vulnerable citizens and the services that support them. I'm finding it hard to get sympathy for people buying luxury cars. One of the priorities we have come, certainly Uniting Care, to the Tax Forum is to say it's time to start having an even more progressive tax system taxing individuals and organisations more who can afford to pay so that our tax system does reflect the principle that those people who can pay more do, that that's fair, fair pay into the tax pot and fair tax transfers out of the tax pot.
This is a relevant session. I want to make progress, so I'm going to start jumping on people if we get too much. Can I rely on you, Brendon Lyon, from Infrastructure Partnerships Australia.
I would like to draw the debate back to this issue of road-user charging of congestion overlays because I think this is really a critical issue for Australia to embrace, one of the very important micro-economic reforms that we need to move on with. I just like to read very briefly from a report from the Productivity Commission which said:
"Efficient road charges need to reflect the costs imposed by individual vehicles. Full taxes cannot differentiate sufficiently between types of roads, types of vehicles, road surfaces or the weight of vehicles. Current arrangements fall well short of efficient road charges because registration charges cannot differentiate between the distance travelled by different vehicles. Those which travel large distances receive large subsidies."
The point of that report was written in 1991 by the industry commission and here we are 20 years later. We have enormous congestion problems in our cities. It's time that Australia really started to embrace some of the changes that we need to undertake, some of the structural changes that we need to undertake if we're going to deal with these significant public policy issues. As it stands, motorists in this country pay an average charge of 9.9 cents per kilometre for each and every kilometre that they drive, but it's not linked to consumption, it's not linked to time of use, it's not linked to the costs that they're imposing on other motorists, as John rightly pointed out.
We had a look at a model last year which moved to a system where you have an average cost of 10.4 cents per kilometre. At that price you start to internalise things like congestion, pollution. You start to target it by having a low-based access charge. You remove the penalty that might exist for people in rural areas who necessarily drive long distances or those who are accessing the road network at times of low-peak demand. On top of that you have a charge for the capital cities where the inherent cost is higher and the congestion loading on top. You're provided with the rational price signals that are going to deal with congestion and exactly the sort of rational price signals that Australia has successfully brought in to areas like electricity, gas and water in the eighties.
We've got a shortfall of supply, we've got excessive demand that we can't deal with. It's time to start getting back to rational economic principles so we can deal with these issues. On the model that we put forward, that would liberate around 10.8 billion dollars each and every year for investment in the public transport networks, in the alternative infrastructure networks that do need to be in place so that we're not disadvantaging people as we bring in price signals for the use of road networks at the time of key demand.
This goes to the very heart of national productivity, I think one of the outcomes of today's summit needs to be a very clear consensus and mandate that we need to start advancing this issue forward, and I'd like to see a clear referral to infrastructure to Australia, to COAG and to the federal government, that we start a reasoned and seasoned debate about how to deal with congestion and the infrastructure backlogs in the country.
You now Rod. Could someone just switch their mic off? Yes that's it now, thank you.
I'm in violent agreement with that. Investing in transport infrastructure is difficult because it doesn't generate the sort of cash flows that roads do, and we need much better train infrastructure, particularly in our cities, and to do that we need to find a mechanism to pay for them and part of that would be, as Brendan has described, governments will need to step up to the plate in other ways as we. If we don't do that, our cities won't work properly. It's not just a matter of economics, but it's a matter of sustainability and we need to be able to deliver clearly on both.
Frank Stilwell from the University of Sydney. Frank.
Yes. As a political economist, I'm in favour to use taxes to change behaviours, but I think we have to be cautious because sometimes the effects can be less impressive than one would hope. I think the carbon tax issue comes immediately to mind. Putting a price on carbon is a good thing, sending out a signal that we want people to desist from behaviours that are not ecologically sustainable. Using that as a way into a more general emissions trading system actually creates quite a different set of structures and incentives.
In my view it's much better to directly tax bad behaviours than sell licences to behave badly. Now, that might seem a rather fine distinction, but it does suggest that when we're talking about taxes here, it is really important to align the signal with the required behaviour, but also I think it's important to recognise that there's some paradoxes here. A successful tax of this kind doesn't raise revenue; in other words, you've got this basic either/or situation where if the tax is unsuccessful it generates a lot of revenue, which might be then used for good public purposes, but if the tax is successful in causing the behaviour to abate, then it's not a revenue generator. That's one of the paradoxes, but then there's the equity question too.
Some of these taxes impact rather heavily on the poor. I think it's to the Government's credit that they recognise this in relation to the carbon tax with a pretty comprehensive compensation system, but that too depending upon how it's designed, can undermine the effectiveness of the policy because it gives people back with one hand the money that you've taken with the other, then perhaps the behavioural change may be relatively modest.
So these are, I think, some of the dilemmas that we have to recognise, but fundamentally to recognise that behaviour doesn't just depend upon market price signals. Yes, it's a good start, but, for example, revenue generated by congestion taxes is much more effective, it's then used to finance public transport. That's when you get the big behavioural shifts not just through the taxation itself, but through a broader package of measures involving changes in pattern of Government expenditure as well as the taxes themselves.
The final point is that we do want a more egalitarian society where these sort of taxes can play a modest role in achieving that goal, but only in relation to a broader package of changes that impact on wealth, on land taxes, on estate and intergenerational transmissions of wealth. So we can't use a micro-mechanism of this kind to address those broader challenges that I think confront us today.
Michael Kilgariff, you're from the Australian Logistics Council.
We represent the multimodal freight industry. I think the issue that we have about the congestion tax is that there's a misunderstanding in the community that the freight industry is, in fact, the cause of rather than the victim of congestion. So to that extent I think in any debate on congestion taxes we need to focus on all vehicles on the road, not just heavy vehicles.
The main concern that the industry has, and I think this relates to the previous session, is that in an area where states are suffering from diminishing revenue bases, it's effectively being used by states as a means to raise revenue which will then not be delivered back to the infrastructure that has delivered the infrastructure straight off.
So from an infrastructure perspective, we believe there needs to be a longer view and we need to be sure that infrastructure is being driven by volumes which will provide an effective framework for decision-making, by financiers and private and public sector players. To that extent we need to make sure that there are rigorous cost benefit analysis principles in place, and we see that this is definitely a role for Infrastructure Australia and there's a number of infrastructure projects that could be susceptible to a cost benefit analysis, one being, of course, the high speed rail network.
Lastly, the last point I would make, is that ultimately the freight industry is not it's own master. We are really, I guess, secondary consideration behind people movement and ultimately that's because freight doesn't vote; people do.
Alexander McLaren from Left Right Think-Tank.
I might just add my voice to the consensus and hopefully the consensus should be some sort of indicator that something should be acted upon here. We support a Singapore-style cording model for road congestion charges. We need to move towards user pays taxes based on volume and obviously congestion and things like that as well. The one thing that hasn't been addressed is how money raised by a congestion charge is reinvested, whether or not it's put into infrastructure and public transport and the like. So it is about changing behaviour and not just raising revenue as well.
So I think what needs to be explored is how we reinvest in alternative modes of public transport and the like. At the moment the state government has subsidised public transport to something like 70 cents in the dollar. So we need to look at how to fund public transport and high speed rail and the like.
It's all well and good when you walk down the garden path with the fairies to try and work out how these things will operate in a perfect world, but how to you change the behaviour of an AWU member who lives in Sydney, is a shift worker at the Qenos Ethanol Plant in Botany and has to drive to work and has no alternative, and the congestion that he goes through on the M4 and the cross city tunnel and other roads along there where he is paying substantial tolls, will be paying substantial tolls, how is it fair that they wear the burden of congestion taxes when there is absolutely no alternative for these people.
The issue about congestion charging on freight ignores the fact that as we have seen time and time again when more costs are added into the logistics industry, it is the owner drivers who are already under significant pressure who bear the brunt of those costs. When we look at the issues in the major cities, yes, congestion is a huge issue, but costs of living, if you went out there and told middle income workers at the moment, costs of living is the key issue of the electricity charges, water charges, food and groceries and your transportation costs continue to spiral out of control and there isn't the alternatives that exist in many of our major cities because, as one of the earlier speakers said, we don't have European-style compact cities with metro systems and good public transport systems, but we do have American-style sprawling where most affordable housing is still a long way away from the places of work of these workers.
If you think about issues that are going to come out of this, if there was any Government going to go out at the moment in the current economic circumstances and advocate a congestion tax in our major metropolitan areas, well I pity the fool. It's not a realistic political proposition at the moment. We should be talking about how we actually get the investment of these areas that is needed, how we do build public transport systems doesn't reflect the current way that our society is and the current way that people are operating.
A congestion tax isn't for just a rich banker who lives in the western suburbs driving into the Sydney CBD; it is for people living in the western suburbs, driving to the southern suburbs or other places on their shiftwork where they don't have any alternative but to use these roads that are there. They are already paying significant amounts for using them and they're not the people who can afford to pay it. It does impact upon the decisions that they make in terms of their ongoing liveability and the way that their household budgets are structured.
So in having these discussions it's all well and good to look at what happens overseas and what happens in compact cities, which do exist, and that are alternatives, but we have shortages in our cities which aren't going to be alleviated simply through congestion charges. Unless we have the viable alternatives in place, all you're doing by putting a congestion charge now is adding to the already significant burden in increasing in the prices of costs of living for working people.
I'm left wondering who pays, but Bruce Cohen, Grattan Institute.
I think over some timeframe there's inevitability in relation to congestion charging, but in terms of what the revenue is used for, there are obviously questions that are going to need to be answered in terms of removal of other existing taxes that exist in relation to motorists because I think the point that Paul makes is absolutely right, that there are costs of living pressures.
I think that there are infrastructure pressures that need to be asked and answered. Take the example of Melbourne, which is an area that I know pretty well with another hat on, if you introduce a congestion charge and you shift more people onto the public system, you will have more trains, shutting of gates, more congestion. It will just loop, so you will need to add that investment in grade separation. The Victorian Government is moving in that direction and should be congratulated for that, but it's a congestion tax that in and of itself is not a panacea. It needs to be having regard to, you know, pricing in relation to public transport system and investment in infrastructure so that people have those alternative choices.
And [indistinct] from [indistinct] Biotechnical.
I would like to take us off the roads if that's okay and perhaps into a hot air balloon. I'm interested in nation building and I'm interested in talking about innovation and knowledge industry. It did come up earlier but lost in the recent discussion.
Australian Biotech(?) represents public and private organisations that work in the medical device area, looking at alternative fuels, looking at agriculture, looking at new drugs, new therapies, new diagnostics. We see ourselves as part of the solution and part of the future. Many of these companies are capital hungry, many of them do require inward investment from foreign investors and there's sorts of things that I would like to see for that small sector is the better incentive for patient capital.
By "patient capital" I mean people who are investing for five years plus because many of these technologies take five/ten years to get to the community. These are things that the community want and need and the fundamentals are not going to change. If anything, they'll get more pressing. I'm talking about ageing population, about replacing petrol chemicals, all of the things that Australians generally do want.
The biotechnology sector is one of the few industries that touches on all of those areas. So tax is a very important part of this and perhaps I will be the first person today to congratulate the current government for introducing the change to the R & D tax concession, moving away from the concession(?) and to a credit or what's called an incentive now, brilliant for biotechnology companies and for small innovative industries. Really we should benefit significantly from this.
As economists like [indistinct] down the back here I see, I would tell you, it will increase the investment in research and development which is what we want. We want to drive that so we get those products and services to the community in a more cost effective way because the time to market is the most important thing that we need to be concerned about.
The other thing that it would be lax of me not to do is to recognise the contribution of the Greens who did secure a quarterly payment for small companies who will get a tax credit and that is also going to help them with business certainty, will spoon out their cash flow, and those are the reforms which we can do in isolation which will have a major impact on the future. We're talking about new technologies, not old technologies, and no longer can Australia only see itself as a mine and a farm. We also have to be developing new technologies and new industries for our educated young people and also for us because we're ageing and I bet we all want the therapies that people are working on right now.
Thanks. It's interesting listening to a debate which should be simple. Even a direct action tax like consumption tax and alcohol tax or gambling tax, the lesson can be seen, you've got to look at the big picture. I think we've come here today, business tax, state tax and direct tax, you keep coming back to a fundamental issue that they all have knock-on functions. You have to look at the tax reform in a big sense.
If you stand back and look at our tax system it is one of the fundamental pieces of infrastructure in this nation, it drives the revenue part of our profit and loss account year in and year out and allows us to fund our balance sheet. I just wonder whether we've got the right framework in place to achieve fundamental tax reform. The outcome of a session like this should be a framework or as a roadmap to achieve change which picks up everything from should we have a luxury car tax to should we have a consumption tax right back to some of the bigger issues around how do we encourage green industries, how do we get a fair return from our resources sector, but it has to be a holistic well-funded properly-appointed independent bipartisan approach that transcends one term of Government, otherwise we're going to struggle to achieve an outcome.
[indistinct] Rural Transport Association.
I don't want to talk about congestion, but I would back up my colleagues from other transport industries. Heavy vehicles are about 3 per cent of all registered vehicles in Australia, so we're a victim of congestion rather than a directly a cause of it.
The trucking industry nationwide has an arrangement in place since I think 1991 where the industry has been asked to pay back the cost of its impact on the road system across the nation. So this is a cost recovery scheme. The two major inputs to that are the input of trucks on road maintenance, and that is large, and the impact that trucking needs have on the required strength of the road system.
If one of my members drive a 115 tonne road train over a bridge in New South Wales, that bridge needs to be strong. Even though we've had that system in the country for 15 years in operation, in 20 years an agreement, it's commonplace in trucking to still find very significant issues in relation to access to the road network. There's no flow-through of funds.
I have one fellow who travels across the top end of Australia, 1000 kilometres is his journey, but in the last 3 km of his trip he cannot drive a road train on a particular road because the relevant last link to where he is going is owned by a particular council which has taken the view that it can't afford the maintenance costs of a road train driving down that road. So he spends a day hitching and unhitching in order to deliver three semitrailers to their destination.
In New South Wales I've got several members who cannot get a livestock truck underneath a particular bridge on a particular railway, and for those who don't know what that is, it stands nearly five metres tall, so those members take a detour of about three hours in order to drive to the place where there is a bridge that is sufficiently high that they can drive under the relevant railway line.
What's the significance of that? Although we have costs recovery and the industry is very proud to have a commitment to always pay it's own way, where road users can have access to new capital, we have cost recovery but road owners cannot go out into the private sector and source funds, whether it's Australian superannuation fund or overseas cattle market and upgrade the road and upgrade the capital capacity of the road so you can deliver freight more efficiently.
In effect, we have a private sector costs recovery arrangements but a public budget constraint, and this is an issue at every level of Government, federal, state and council, and fundamentally one of the things I'm interested in seeing from a reform agenda like this is moving forward towards a system where we link the revenue the industry already provides, the way new investment flows from the road network. We have a very simple slogan: we want the money that we currently pay to actually follow the truck, and from that if we're talking about productivity benefits and so forth, I think you would see very significant gains.
A small immediate step in the health sector, the Federal Government has recently moved to puts its existing and its new financial contributions to the states onto a performance framework. As I understand it, I think the Federal Government does not and no State Government when they provide funds to councils and shires none of them currently put any kind of performance metrics down in terms of what level of access to your network are you providing. As a simply physically-neutral technique, that might be a very convenient place to start.
Thank you. Prue Power with the Australian Healthcare and Hospitals Association.
I would like to take the discussion on to health for a while. Obviously, it goes without saying that the maintenance of a healthy population is fundamental to a productive nation and Government can use a range of measures to contribute to the health of the community, obviously through taxation measures. We've talked already in this session about tobacco tax, alcohol tax and even a fat tax.
My association would certainly support an increase in tobacco tax. Although there has been a reduction in smoking in Australia, approximately 17 per cent of Australians continue to smoke daily and it is the single most avoidable cause of ill health and death in Australia. So that needs to be tackled very seriously.
As far as an alcohol tax is concerned, there is a lot of evidence to suggest that there's a strong link between price, consumption of alcohol and harms and particularly for young people. So that I think this nation must consider looking at alcohol tax. We need a taskforce.
I notice that the Henry Review recommended what he called the unhealthy and unproductive wine equalisation tax and replacing it with a volumetric alcohol tax, and it seems as if the lobby is growing even from parts of the wine industry that this should be the case. I don't think this should be delayed.
As far as so-called fat tax is concerned, Bob suggested taking a leaf out of Denmark's book. I've had a look at this and I think that we do need to debate this. I think the jury is still out and there needs to be a lot more evidence. However, obesity is the epidemic that is hitting us now and we do need to tackle it as well.
I make the observation that Medicare as a compulsory tax-funded public insurance scheme has proved its worth. If we measure it by our life expectancy, we've done well. About 81.5 years on average for all of us. If we look at efficiency terms, as a proportion of GDP, it's 0.4 percentage points lower than the OECD average and Government spends less on health than the OECD average.
However, the levy only partially funds health, as we know, and here again, but this has been addressed in the Henry Review, I think the levy is an historic anachronism and we need to have a discussion about whether that should be incorporated into the personal income tax rate scale or, as Henry suggested, maybe applying it as a proportion of the net tax payable by individuals because, in fact, the collection is complex and not necessarily equitable. Either way, it's preferable that there's transparency in relation to health expenditure and I think that does need to occur.
The treatment of the levy actually has an impact on private health insurance and the incentives around private health insurance. If the levy is incorporated, then the incentives around private health insurance would need to be reviewed. If it's not, then our organisation fully supports this government's policy to means test the private health insurance levy or rebate.
Mr Smith, I think the Henry Review has been dragged in here a bit. Can I ask Greg Smith for his comments.
This is a very complex set of issues which I think it's very difficult, actually, for a forum of this kind to adequately address these issues. The common feature of all of this then is that they're not really tax issues. They're areas where tax has a place in an integrated set of public policies. Take roads. As we've heard quite correctly, it's not really relevant to fix the tax system for roads until you've also fixed the institutional arrangements for roads and the way in which we fund the roads to the way we make investment decisions about roads and to whether or not we establish a market for roads.
Similarly, on this health issue, there's a set of quite difficult questions that have to be addressed on these health questions, whether you're talking about gambling, whether you're talking about tobacco, whether you're talking about alcohol or even about the accident effects of road use, the impacts are quite variable from person to person, from place to place, from circumstance to circumstance. As a result, if you try to use tax to change behaviour of a small part or some part of the group that you're concerned with, then you, of course, also impose that same tax on large numbers of people for whom those impacts are not relevant.
So this is the difficulty with using tax all the time as an instrument where, in fact, we have a wide range of instruments to effect public policy. My call in all of this, and frankly I could have said the same thing about the environment where we've got a lot of suggestions that there are tax expenditures or other inequalities in the way in which we are taxing or treating the environment compared to other activities, these are deeply evidence-based questions. These are all deeply empirical questions.
What concerns me is that not to call now for - and Henry's review didn't really call for or suggest specific answers to any of these things. What it actually called for, if you read the recommendations and study the report, in nearly all of these areas it's basically saying these things need to be on agendas that are evidence based, and the first priority is to build that evidence. I don't think we have yet for infrastructure in Australia a good enough evidence base on how we do infrastructure. I don't think we have in our transport arrangements anything like enough knowledge about how our transport costs work even though in some cases we've had the systems for many years. In the case of the social issues, perhaps not so much tobacco but certainly alcohol and some of the others, I think there's still a strong evidence base needed. I wouldn't be calling on government to rush into these agendas. I would be calling on government to rebuild Australia's evidence base in these areas as a basis for future policy making.
Thank you for that overview. Jeremy Tager from Greenpeace Australia Pacific.
I will talk about an elephant that isn't in the room and should be. No-one today has mentioned the notion that the growth model is not necessarily the only model by which our society and economy can operate. Infinite growth is neither rational or safe. It repudiates the submission that our life support systems come from the environment.
One set of signals, fossil fuels, in 2009 the Australian Government made a commitment at G20 to eliminate or phase out inefficient fossil fuels. The only department that made an honest appraisal of those subsidies, and it wasn't the complete list, was the treasury. They identified 17 subsidies, the value of those around 3.5 billion dollars a year. By the time that got to the G20 in 2010 we had no fossil fuel subsidies remaining. Our calculation is that the current national federal fossil subsidies is closer to 20 billion.
I have a very specific proposal to make, a complete and comprehensive investigation of all state and national fossil fuel subsidies that are destructive with a view to understanding which ones can be phased out, eliminated, and which ones need to be done carefully because they may affect sectors or industries who cannot afford to have them removed immediately.
Thank you for that. I know you've been waiting for a while. David [indistinct] back to trucks.
Back to trucks and fossil fuels. We do pay our way. We pay 2.4 billion dollars a year in road user charges which is calculated annually by the National Transport Commission. It is recovered through registration and through the component of the federal excise. Senator Brown commented that there is a fuel rebate which comes back to industry. The reality is Australians are living in a very transport-intensive economy. A team did work three or four years ago that the vast majority will be carried by trucks or trains. So changing the price, not returning that excise to the transport operators, road and rail, would not change that mix.
We simply as an industry pass those savings back on to our customers, the Australian economy. So those savings are fully passed on. They’re not a rebate, just simply avoiding a tax on Australian industry that would otherwise reduce our productivity.
With regard to the particular matters, I just make a point, in 1995 with legislation with new electronic engines we were able to reduce our emissions from an unlimited amount to .24 of a gram per kilowatt per hour. That is 0.2 per hour today. [Indistinct] We've come a long way.
Phillip touched on the charging system and supply side. I guess our industry, the trucking industry, has, in line with COAG but probably for different reasons, concluded that we support a move to a variable waste charging system. COAG's move is largely predicated based on mass distance, location-based charging, a very expensive system where every truck would have GPS systems, communicating back to a regulator, sending us a bill based on the type of road travelled on and the weight carried. A very accurate measurement.
We believe a much more feasible solution is simply a fuel-based charging system. Moving away from the registration, where about a third of the vehicles costs are collected, very closely tracks the wear on roads. Much lower cost is a simpler solution without the perverse outcomes. A B-double costs about $15,708 a year to register. Single trailer carries about a third of that, is about a third of a cost to register. We have more vehicles approving less safe, productive, less environmental friendly outcomes. If that is broken, we would be happy to move to a further system.
Do you have a comment on that? Are you coming from somewhere else at the moment?
From somewhere else but I would comment in saying that fossil fuels being burnt wherever they are, polluting the atmosphere and putting a cost burden on the future. All we're saying is, or all I'm saying, is that it should be paid for equally and should not be subsidised, and there is 8 billion dollars in subsidies going in fossil fuels.
The other point I wanted to make is that we are on a planet and we're sharing it with seven billion other people. There were 2.4 billion when I arrived on the planet. There's seven billion now and there is a crunch coming because of the resource base of the plant. We're using 120 per cent of the living resources at the moment. This brings up the topic of a Tobin Tax, Robin Hood Tax; Europe is moving for it and others. We ought to be at this side of the world joining in on that because it needs to be multinational. It's a point 01 or so per cent taxation on financial transactions, can raise 200 billion or more to help alleviate poverty, and when you alleviate poverty you reduce population growth and the pressure on the environment and you increase the social amenity. It is one Australia should be moving to support and we should have across the board political support for the implementation of that tax.
Thank you. Ric Simes, Deloitte.
Thank you very much. I want to talk a little bit about some of the implications on congestion charges. As I see it, how we organise our cities, and alongside health, how we organise our cities it seems to me is the largest micro-economic reform issue on the table for the next decades. As Greg Smith said, tax is probably only a small part of it - tech tax - and I want to tease out one of the other aspects of it.
The starting point is that we need to get more funding into roads and we've got private ownership of toll roads and the like and my take on it is that that isn't a heavy record. There has been failures there. An alternative model is one where the private sector builds and operates and the Government owns and, indeed, when I start thinking about - and in that model Government takes on the risks associated with traffic flows down a particular path.
If you take that to the next stage and think about how we organise a road network, which is what we're starting to talk about with congestion pricing, it seems to me that that needs to be done or is done best in a coordinated fashion and you need some sort of authority that is able to work out investment decisions within the network alongside pricing decisions within the network, which means that we need to go back and start thinking about the role of Government in this area. We put that alongside rail where I think that there's a lot more scope to get more private money into that, and what this tax debate, I guess, is throwing up in my mind is that we need to go back and think more broadly about the role of Government in these issues.
Yes, and certainly from Greg's contribution, I'm kind of getting that flavour. Ian Chalmers from the Australian Automobile Association.
Picking up on a couple of points, it's certainly from the point of view of an organisation that represents motorists around Australia, the existing system is broken and we do need to search for a new approach, and I think under the current funding arrangements we see motorists around Australia, if you look at petrol and diesel excise, the revenue raised through those two mechanisms, through excise, is 13.5 billion dollars this financial year, but we are only seeing a proportion of that returned back into funding the infrastructure that is required for our national road system and our land transport system. So we do need to look at alternative models.
I think from the point of view of motoring organisations, we are prepared to contribute to that process and to work with other organisations and, indeed, we are doing that, we're working with Infrastructure Partnerships Australia to look at some of the future models that might be considered. Ken Henry in his report, and the panel, concluded that the existing system for fuel excise is basically about raising revenue and it's not about delivering more efficient transport outcomes, so clearly there is a need for future action.
I think as a first step, one of the things that we can do is seek to get a better outcome on road funding for motorists where they are contributing currently around 38 cents for each litre of fuel that they consume, but yet we see that only a proportion of that, less than half of that, in terms of what the federal Government controls, goes back into road funding. So I think a dedicated formula for road excise/fuel excise should be one of the things we look at. For the longer term, we should be certainly looking at some of these alternative options in terms of road broad-user charging, not just congestion charging.
Thank you for that. Jeff Carnegie, you've been waiting patiently.
I thought it was worth mentioning again that social taxes like these, particularly ones that are for changing behaviour, its revenue is not the main aim. In fact, as Henry said, it is actually a by-product and should decrease over time if they're doing the right thing. If they're not decreasing over time they're not working and should be reviewed. Certainly while they're there, we have no problem with them being hypothecated and fed back into the actual issue and affecting further change that they were created for but they should not be relied on to fund full implementation of basic infrastructure like, for example, a public transport system.
As Paul said, if you don't have an alternative, the congestion tax, something like a congestion tax won't work. People will simply be disadvantaged. So infrastructure like public transport should be invested in, not necessarily as a profitable service but as a public service, and in the good old days, of course, Governments used to go into deficit to fund such infrastructure, but that doesn't seem to be the way to do it any more.
Not now. Charles [indistinct] from the [indistinct].
Following on from Jeff's comments, I think at the heart of this session is the issue of can the tax system be used to enforce behaviour, and undeniably we can guess the response to that. The small business tax concession was the result of that. We saw a lot of change in behaviour as a result of that. So it can be done. The question is what behaviour are you trying to deliver, and I think the road user charge is a good example of where so many different interests can be loaded up onto the one mechanism.
Already today when we talked about the road user charge we talked about that fund being used to fund the road network. We've talked about it being used to build productivity, create equity within the system and who is using that road network, at the same time building in these broader external issues at the same time as reducing emissions which are not always complimentary. Looking at reducing emissions, if a congestion tax comes onto the road, that means that for trucks to avoid the congestion tax they have to travel greater distances to get where they want to go creating a perverse outcome.
Undeniably the tax system can be used very effectively. We believe from our side, and it will be no surprise to hear, we obviously prefer a carrot rather than a stick approach in using the tax system, and not forgetting the tax can be used as a way to load or gloss or alternatively to provide some tax concessions. So there's different ways.
Using the farming sector as an example, we always say it is better getting 150,000 funds working for you rather than against you. That's where that tax incentive process comes into play. It can be effective provided we know exactly what we're trying to target.
James Ensor from Oxfam Australia.
I just wanted to pick up on Senator Brown’s call for engagement with the financial transactions tax. As an international development agency, Oxfam is all too aware of impacts around climate change. The bigger picture here is the international community in Copenhagen did commit to finding ways to generate an additional 100 billion dollars per annum by 2020 for two dominant purposes. Firstly, to support developing countries transitions and low emission pathways to development, and secondly, to support those people in poorer countries to adopt.
There are a range of initiatives that will be required through all sectors to generate that sort of capital over the next period. The financial transactions tax is one key element of that which is on the agenda, particularly the G20.
It is important to emphasise that financial transactions tax is not a retail tax. It is a tax on institutional trades of derivative financial instruments and bonds, and interestingly, International Monetary Fund was recently commissioned to look at the financial transactions tax as a mechanism to these means moving forward. They drew four important conclusions.
Firstly, it was that the IMF judge this tax to be workable. Secondly, they judged it to be a very efficient mechanism for generating the sort of finance that would be needed moving forward. Thirdly, they deemed that it was going to be one of the most progressive taxation options on the table looking at these issues, and fourthly, that they felt that if pitched at the right level, this was a form of taxation which would reduce or smooth some of the excess volatility in global markets moving forward.
Interestingly, Bill Gates was recently commissioned by the G20 to do a similar analysis for them looking at mechanisms for generating new and innovative sources of capital to deal with poverty and climate-related issues, and we understand that is also very positive. So we think there's a significant need and international interest in this area.
From my point of view, the first step in reform of these social environmental taxes is to build confidence back into the public on what they're about and what they want to achieve. There's a general lack of confidence, increasing alcohol taxes, carbon taxes, the whole lot. The general view in the public is "God, we're going to get taxed for breathing next. Why do we get taxed on all these different areas?"
The first step in building that confidence back, because Australians have a pretty general sense of fairness, they're reasonably happy - not over the moon about paying a tax - if they're confident the heart of the legislation is in it and the money is being used to solve the problem all to meet that purpose.
Two areas of consistency, but the difference between the electric hot water and the solar hot water is just appalling. It says to people, well have they got their heart in these environmental incentives in tax. The solar power incentives that were wound back because they were too popular. The public is thinking, "God, you know, wasn't I being encouraged to help the environment but now it's too popular, it's costing Governments too much money. I just don't get it".
Paul's issue of his worker from western Sydney, the tax on the Harbour Bridge. All tolls are taxes. It's cheaper when I go to work at 3 o'clock in the morning than your mate. If that was on every road toll, it might encourage your member to go on a flexi shift or whatever to change his work patterns to meet it. So there's a consistency issue.
Then there's an accountability issue. Is the tax going to solve the problem? If there is a fat tax, what is it going to be used for because the general view of the public is "If it's going to go into general revenue, it's just another tax. There's going to be no benefit from it. Why should I have to pay it?" So if there is a congestion tax, what's the outcome, what's it going to be used for to reduce congestion. Is it going to be used for better public transport? If there's a fat tax, how is that money going to be used to reduce obesity? There has to be a link between the taxes and unfortunately on many of them there isn't.
Tomorrow if I get the chance I want to make two general observations about Australia's tax system. One is that it's a pretty crowded field for the worst tax decision of the last 25(?) years, but one of the entrants in it is the decision to abolish the petrol excise in 2001, which was costing at least half a billion dollars a year in revenue foregone, and the figure is higher than that. Although I suspect it's one of those suggestions that the two people on my left don't want to hear and will rule out, and while I understand why they do that, I also take comfort from the general gentleman on my left's assurance that we really ought to, if we think the evidence isn't in yet, as Greg Smith suggested, for having congestion taxes and that sort of thing, to be revisiting the, as I say, bad decision not to index petroleum as in the same way as others.
The second point is that Australia's tax system is flawed in many respects because of any number of decisions to introduce loopholes, exemptions and deductions which treat different categories of taxpayers differently for no good reason. One of those taxes four-wheel drives rather than other vehicles and therefore consideration be given to removing the concessional treatment of imported four-wheel drives by our residual tariff arrangements.
Gary Banks, Productivity Commission.
Thank you. I really just wanted to support, perhaps unsurprisingly, the comments of Greg Smith about the need to get the evidence right here. What has really struck me today in this area, there are a number of areas here the commission has done some work, is just how unresolved some of the detailed issues are about taxing in this area. So this whole area is about taxing to change behaviour but you've got to change it in the right way to the right extent. That is very hard.
I guess secondly, the ability, and this has come up, the ability to convince the community that these taxes are worthwhile depends on that evidence and the explanation. The prime minister spoke this morning about the importance of explaining to the community what's at stake and why changes in taxation are necessary. So those things are very important.
There are three areas that the commission looked at recently which would illustrate that, I think, and that are covered in the review. I think, by the way, the review came up with very sensible general principles to guide further work, but one is in relation to gambling and in particular the pokies and the question of taxation there. It's not even clear what impact taxation has on the price of playing the pokies. Most people don't understand what the price of playing the pokies is. So you could end up in a situation where problem gamblers who already count of 40 per cent of revenue and the cost end up getting into bigger trouble spending more money because we've tried to raise the price.
In relation to roads, the question is how do you calibrate the prices there to get the right time, the right place and the right weight and deal with those bridge problems, et cetera. Who makes those decisions and what motivates those decisions and to what extent do those decisions join up the market so you can have investment occurring in relation to the revenue flows.
The third area is carbon pricing. The complexities are unbounded in that and would require some monitoring, but one important challenge coming up which is raised in the review is what do we do, about the 200 plus other [indistinct] around Australia that are trying to do the same thing as the carbon tax which of those deserve to stay and which of those deserve to go. That's quite a complicated issue and, surprise surprise, there's a lot of politics in each of those areas. So the politics itself will be helped by a better evidence base.
Now, ladies and gentlemen unfortunately, I've actually left some of you with lights on, but we're due for a 5.40 finish and I think it's important we stay with that. My apologies for that, and others I have missed, and I ask the Treasurer to give us a brief wrap-up.
Can I just say how delighted I am with the spirit in the room today. We have not always agreed but I think the discussion has been pretty good, it has been a pretty rigorous debate and I hope that's the way it goes tomorrow as well. Could I just make a couple of comments about the environment and also about social taxes and also financial transaction taxes? The reason we have put an overall price on carbon is quite simple. We had a pretty clear recommendation that an overall price on carbon is the least costs way of actually reducing carbon pollution and we shouldn’t be coming back and having second, third and fourth and fifth goes at trying to price it on top of the overall price.
So I've heard some talk here today about business use of fuel, for example, well we're putting a carbon price on business fuel usage, we're doing that. We can't come back and keep doing it again. I think it's important that's understood because at the end of the day our economy has to be competitive and we do have to have an eye on business input costs. So there's just no endless way of raising money in other means. We've got an overall price on carbon for a very good reason because it sends the price signal that we want to send, it drives the investment in renewable energy. But over and above that, whether it’s all the state schemes that were raised earlier or other things that are put forward, all that does is drive up business input costs. There's no evidence that it necessarily has any further impact in terms of reducing carbon pollution.
Now, in terms of social taxes, I certainly agreed with what Greg Smith had to say. I agree with what Kochie had to say. We have got to be careful about how we deal with these issues. We as a Government have increased the price of cigarettes. The evidence that came in in our Final Budget Outcome the other day is that that has reduced consumption but I'm not sure that it extends much beyond that. But we do extend ourselves to public disdain if every time they look around someone is talking about a new social tax so I would caution people about doing that.
Now, in terms of financial transaction taxes, these issues are being discussed at the G 20, that is true, but it is not quite in the way it was put today. The fact is financial transaction taxes are on the agenda in Europe and they're not on the agenda in Europe to fund the environment, they're not on the agenda in Europe to fund development in the Third World. They're actually on the agenda in Europe to raise money because they're in a diabolical position when it comes to their budget bottom lines. So that's why they're on the agenda in Europe.
There is a debate about whether these are a progressive tax or not, or whether they work effectively, but before we even get to that, the only way a financial transaction tax can work is that it is truly international taken up globally, but in Europe where they're talking about it right now, I can tell you from my experience only last week in Washington a financial tax is not being talked about to deal with poverty in the Third World or for that matter any other laudable goal in the environment. It's actually have been talked about in the terms of survival of banking systems in Europe. That's where that issue is going. I don't mean in anyway demean the objectives that people here raised, and why it's important that we have global action on the environment and so on. But we ought to be very clear on where these debates are based on once again on the evidence of what is going on. But having said all that, can I just once again thank everyone for the spirit that they've brought to this debate today. I would say to you all we've got a drink session later on, have a goodnight sleep and turned up bright eyed and bushy tailed tomorrow. Thank you.