Value-added taxes elsewhere were riddled with politically-driven exemptions. Once one exception is allowed, it is harder to refuse the next one.
Sir Roger Douglas gave us the world’s best consumption tax, without exemptions. Even visiting your GP draws GST.
Equity issues are handled through direct subsidies to lower income households and Community Services Card discounts.
Four decades later, our consumption tax still tops the Tax Foundation’s international rankings.
We should take a similar approach to congestion charging. Keep it simple.
Last week, the Helen Clark Foundation and the Initiative co-hosted a panel webinar on congestion charging. It was a fun discussion.
Everyone saw the merit of congestion charging schemes.
Kali Mercier, who authored the Helen Clark Foundation’s report on the topic, noted the importance of equity considerations. She also argued for exemptions mirroring those elsewhere, for example for emergency services.
In the webinar’s comments section, people argued for exemptions for travel to hospital. Or for other important travel. But who could decide?
I suggested an alternative.
Arguments about which travel is critical are like arguments about which products should be exempted from GST. There is no obvious answer that does not invite lobbying for other exemptions.
The simpler solution would, like GST, provide no exemptions at all.
My submission to the Inquiry into Congestion Pricing in Auckland suggested using the collected congestion charges to fund a congestion dividend that would be rebated back to road users. The submission has more detail than can fit into a short column here. I discussed it in the webinar as well.
Most simply, charges paid by those driving at peak times would be distributed to all road users who travel in the relevant area regardless of when they travel. Those travelling only at off-peak times would obviously pay no congestion charge but would collect a congestion dividend. Peak-time drivers would still pay a net charge, overall.
Emergency services that travel at all times of the day could easily wind up being net beneficiaries – without having to set any exemptions at all.
Households with a Community Services Card could receive a boosted dividend, with the rest of us receiving a bit less.
Really the best congestion charging proposal is whichever one can earn durable political support.
But the simplicity that comes of avoiding exemptions has a lot of staying power.
Just look at our GST.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
Four decades later, our consumption tax still tops the Tax Foundation’s international rankings.
We should take a similar approach to congestion charging. Keep it simple.
Last week, the Helen Clark Foundation and the Initiative co-hosted a panel webinar on congestion charging. It was a fun discussion.
Everyone saw the merit of congestion charging schemes.
Kali Mercier, who authored the Helen Clark Foundation’s report on the topic, noted the importance of equity considerations. She also argued for exemptions mirroring those elsewhere, for example for emergency services.
In the webinar’s comments section, people argued for exemptions for travel to hospital. Or for other important travel. But who could decide?
I suggested an alternative.
Arguments about which travel is critical are like arguments about which products should be exempted from GST. There is no obvious answer that does not invite lobbying for other exemptions.
The simpler solution would, like GST, provide no exemptions at all.
My submission to the Inquiry into Congestion Pricing in Auckland suggested using the collected congestion charges to fund a congestion dividend that would be rebated back to road users. The submission has more detail than can fit into a short column here. I discussed it in the webinar as well.
Most simply, charges paid by those driving at peak times would be distributed to all road users who travel in the relevant area regardless of when they travel. Those travelling only at off-peak times would obviously pay no congestion charge but would collect a congestion dividend. Peak-time drivers would still pay a net charge, overall.
Emergency services that travel at all times of the day could easily wind up being net beneficiaries – without having to set any exemptions at all.
Households with a Community Services Card could receive a boosted dividend, with the rest of us receiving a bit less.
Really the best congestion charging proposal is whichever one can earn durable political support.
But the simplicity that comes of avoiding exemptions has a lot of staying power.
Just look at our GST.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
9 comments:
The largely ignored discussion is that the congestion charging is intended to spread usage and thus reduce congestion and that is a huge dividend as it reduces peak capacity needed now and in the future.
We all save so long as it not a further transfer from the loathed cars to the pet love of buses etc.
The Left loath cars and their instincts are hard to control.
So users must pay a congestion charge because those who have built the roads have been short sighted in traffic management, and on many occasions have deliberately built roading to cause congestion. It is business as usual for politicians.
How do we prevent congestion charging from becoming a tool for left-wing environmental activism? Pricing plebs onto bikes, scooters and public transport. Isn't this just opening the door to more top-down authoritarianism?
Most OECD countries have no GST on some or all grocery foods. Having lived in other countries with GST/VAT exemptions on basic food, I would take that any day, rather than NZ's very high food prices. Plus we pay a tax on a tax for things such as petrol, rates etc. GST and congestion charging are just another way to grab more of our money.
Congestion charges are another tool the anti-car people are trying to force on us. In Auckland public transport is basically unusable due to being unreliable, infrequent and high cost (about to increase by 70%!). Trains are being forced off for 96 days next year! Bus stops are being moved around all the time. Buses arrive late or not at all. If you need to get to an important appointment or to work on time you would avoid public transport if at all possible.
The basic solution is to avoid going into the CBD if at all possible.
GST is unfair, and does need exceptions. It's a tax on a tax for rates, fuel levy, road users. Not to mention a tax on health insurance, fire service insurance levy, car insurance, life insurance just to mention a few off the top of my head.
We also tax food! Ridiculous. Only in New Zealand I believe?
Yeah fantastic tax if your rich. Beats paying tax on your investment properties.
All tax is unfair, but undeniably necessary (unless you are Donald Trump). That's why any tax has to be levied evenhandedly with the absolute minimum of exemptions to make it as fair as possible across society, and simple to administer.
Anonymous 9.37 didn't mention school fees, books, tampons, medicine, ACC levies and a host of other stuff people have campaigned about over the years. I daresay if you polled a hundred folk you would come up with a hundred different lists of things to exempt. All of which would be unfair to someone else. S/he thereby unwittingly illustrates why a broad-based, low-rate GST is the right way to go.
I
ncidentally, rates and road user charges are not taxes. They are a payment for services supplied. And that's what GST is supposed to charge. S/he did get one thing right though. GST is a fantastic tax if you're rich. Fantastic for the Crown that is, because the rich spend more than the average person, and so pay more GST than the average person. And that's good, isn't it?
By the way, all landlords whether they are rich or not, pay GST on the costs of running their investment properties, and collect GST on their non-residential rents. At least get your facts right if you are going to engage in a debate on taxation.
12:44 Rates are a service? Great, how do I cancel the service or parts of it I don't require? It's a tax.
All good points you raise about tampons, ACC levy another service you are not allowed to contract out of. But really, taxing peoples food? What a sad country.
I won't comment on Anonymous 8.43's over the top comments on "taxing food" except to remind him or her that that argument was lost before the last election in the context of fresh fruit and veges.
On the matter of rates, it seems to me that if Anonymous 8.43 chooses not to participate in certain activities on offer by his or her council then that's entirely his or her right. Often those services are funded on a user-pays basis, and include GST. But the vast majority of the services are vital to the well-being and public health of all citizens and are incapable of being ignored. Try going without water or street lighting or rubbish collection or sewage or a host of other stuff you take for granted. Rates are the most efficient and effective way of spreading the cost of those services over the whole community, and are therefore no less a taxable supply than user-pays charges. If you don't want to pay, go live off-grid and see how you enjoy that.
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