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  • A new green tax covenant

    by Rumbold
    2nd June, 2008 at 8:48 pm    

    With the price of oil climbing ever higher, there is increasing anger at the level at which petrol is taxed in this country. Britain has the second most expensive fuel in Europe (Germany is top), and it is tax that accounts for the majority of the cost. Protestors want Gordon Brown to reduce the tax on fuel, while environmentalists urge him to resist in the hope that people will use less oil in the future, and/or switch to alternative fuels.

    Despite believing that man is contributing to climate change, many people are justifiably suspicious that green taxes, which are theoretically designed to encourage people to adopt a more environmentally-friendly lifestyle, are just an excuse for the government to raise more money. A few people still think that man has nothing to do with climate change, but then they are just incestuous paedophilic kidnappers, according to the Bishop of Stafford.

    Let us assume for the moment that green taxes are effective, in that they will lead to people being in a more environmentally-friendly manner. These taxes are thus desirable, so long as the overall tax burden does not rise. There is a simple enough way to convince people that green taxes are not just another means by which the government raises revenue; every pound raised by green taxes should be matched in cuts on income tax, by raising the threshold at which people start to pay income tax. Moreover, the tax on oil should be reclassified, so that 25% of the tax counts as a green tax. This 25% would then be spent on the basic state pension.

    Therefore, without raising the overall tax burden, the government can encourage people to behave in a more environmentally-friendly manner (good), raise the threshold at which income tax is paid (good, and which benefits the lowest paid the most), and increase the basic state pension (good, and which benefits the poorest pensioners the most).

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    Filed in: Current affairs,Economics,Environmentalism

    6 Comments below   |  

    Reactions: Twitter, blogs

    1. Bishop Hill — on 2nd June, 2008 at 9:50 pm  

      This is pretty much OK. The other point to make though is that green surcharges have to be set at levels which make them Pigou taxes, so there is no distortion of the economy.

    2. shariq — on 2nd June, 2008 at 11:58 pm  

      very sound reasoning. unfortunately, very unlikely to be implemented.

    3. Planeshift — on 3rd June, 2008 at 1:14 am  

      BH - Not sure I follow the reasoning - what does distortion of the economy mean?

    4. digitalcntrl — on 3rd June, 2008 at 1:18 am  

      There is a parallel debate over here in the US. Their is talk of eliminating the federal gas tax by many politicians. The funny thing is that our gas prices are only 0.53 Pounds/liter. People are still complaining about high gas prices, give me a break, while driving around in their SUVs. I drive a Prius btw : ).

    5. Dan — on 3rd June, 2008 at 7:43 am  

      I don’t understand this fascination with having taxes serve one purpose, and one purpose only. Of course green taxes are about raising money as well as about changing behaviour: it’s politically ridiculous that a government would not care about revenue. But equally, governments are perfectly capable of pursuing two agendas at once - caring about the revenue doesn’t mean not caring about the environment.

      Bishop Hill: ‘green surcharges have to be set at levels which make them Pigou taxes’. Not really, no. Setting a value on the environment is a political rather than economic decision. Economically speaking, any level of fuel tax is a balanced Pigou tax for some value of ‘how much we care about the environment’ (*). Following from this, the distortions to the economy don’t suddenly vanish when we hit a perfect tax-externality balance, or suddenly become worse when we move away from it.

      * There will be distortions relative to other carbon sources, yes. But this would be true on an international level anyway (which is the only level which matters in terms of climate change)

    6. halima — on 3rd June, 2008 at 6:55 pm  

      R for a site that wants to be progressive we have to stop using such phrases as ‘man ‘ is responsible for.. It’s not man, it’s men and women …

      but anyways was going to say, we think people in Britain have cause to complain about fuel prices..I haven’t checked Indonesia recently .. but situation is unbearable in Nepal - and the environmental issues are rarely debated.

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