Options required for carbon tax to work
In the past few weeks we have seen both the threat, and then the deferral, of two taxes. Though very different in appearance, were either primarily designed to raise money?
Local Property Tax was a creature of the bailout.
It was introduced to secure the payment of the household levy, which itself had been introduced to satisfy our international lenders that Ireland was serious about a property tax to bolster flagging national finances and to get more people into the tax net.
Even so, LPT has only ever raised about 1% of the total tax take and PRSI collected and has never been a major exchequer contributor.
Given that it was falling due for revision in 2019, and given the prospect of inevitable rises because it is based on property values, its review has been kicked down the road a further year.
It continues to serve a purpose in ensuring that a broader range of people contribute to the exchequer.
The carbon tax is different. We rely too heavily on fossil fuels and the purpose of a carbon tax is to change behaviours so that people rely on them less, rather than raise money for the exchequer.
In fact, the Taoiseach said as much at the start of the year. He noted that a carbon tax is an environmental tax designed to change behaviour and that money raised through carbon tax from households should be given back to households to compensate for the additional cost.
Sometimes tax changes do result in behavioural changes. The plastic bag levy has undoubtedly worked in reducing plastic litter in this country — if you don’t believe me, just visit a country where it hasn’t been applied.
But it also worked because there were viable alternatives and retailers co-operated. It was highly visible and everyone knows that the levy on a plastic bag is 22c.
The existing carbon tax charges of €52.67 on a tonne of coal, €36.67 on a tonne of peat briquettes, and anything up to €61.75 on 1,000 litres of home heating oil don’t seem to have done too much to change our consumption patterns.
Perhaps we are not sufficiently aware of the full extent of the carbon tax charges that already exist, and even if we were, there is not much we can do to change our fossil fuel spending patterns.
It is not viable for many householders to change their heating systems, and it is not possible for commuters to change their travel arrangements without alternative reliable forms of public transport which use fossil fuels less intensively than private cars.
This is why the Joint Committee on Climate Change advocated increases to carbon taxes last month but said the increases shouldn’t take full effect until 2030.
The committee also said the tax should be hypothetical — in other words reserved for particular purposes like compensating poorer families rather than going into the general exchequer pool.
In this, they were echoing the Taoiseach in January and proposing a tax that doesn’t generate money.
LPT was introduced to demonstrate that action was being taken by the country.
Carbon tax was introduced to prompt action to be taken by the taxpayer. Taxes may have a role in behavioural change, but such change can only happen where there is an alternative.
We are wasting our time discussing the pros and cons of carbon taxation without viable alternatives for consumers and businesses alike.
Brian Keegan is director of public policy and taxation at Chartered Accountants Ireland
