Environmental Taxes Amendment

Amendment laid at the March States meeting

Pour: 27

Contre: 17

One of the principal stated aims of this personal tax review is the need to diversify taxation away from its reliance on personal income tax by the substitution of other forms of taxation.

The list of such diversifying taxes is limited and therefore it is perhaps somewhat surprising that the review shies away so readily from any proper consideration of the role of environmental taxes in this task.

In a moment I’d like to examine the reasons given in the report for not proposing environmental taxes, but first it is worth looking at what is meant by the term environmental tax.

Environmental taxes are economic instruments to address environmental issues. They are designed to internalise environmental costs and provide economic incentives to promote environmentally sustainable activities. The point about internalising costs bears further examination. The price we pay for fossil fuels includes the cost of extraction, refining, shipping, delivery and profit, but it does not include the cost of pollution, effects on human health, climate change, acid rain and more. Those costs are externalised: in other words, since the producers and purchasers do not pay for them, then society as a whole has to pick up the tab. This pricing system masks the true cost of fossil fuels and results in damage to human health, the environment, and the economy Measures that promote a move away from carbon-intensive and polluting forms of energy go some way to addressing this market failure. The IMF says that energy prices in many countries are wrong because they are set at levels that do not reflect environmental damage, notably climate change, air pollution, and various side effects of motor vehicle use, such as traffic accidents and congestion.

The IMF goes on to say that energy tax reform doesn’t need to be primarily about raising new revenues, but could focus on restructuring the tax system away from taxes such as income tax, and towards carefully designed taxes on energy.

Often – even in this assembly, sadly – environmental issues are dismissed as somehow unimportant, or irrelevant to us in Guernsey. The word “green” is used in a pejorative sense, and those that voice environmental concerns are also negatively labelled, implicitly or even explicitly. There are plenty of reasons to explain this attitude – environmental problems are seen as too big, and too long-term, for Guernsey to make a difference, for example – but what it generally boils down to is this: there are vested interests in maintaining the status quo, and so maintaining the status quo is often the easiest route to follow, regardless of the consequences. Guernsey is not, despite being small, immune to those consequences, and those consequences include significant social and economic impacts. This is why the States Strategic Plan stipulates that environmental considerations should be on a par with social and economic considerations. Guernsey cannot abdicate its global responsibility: we owe it to our children, to the next generation, not to stick our heads in the sand over environmental concerns, no matter how politically convenient that would be in the short-term.

The good news is that, in tackling environmental concerns, we often reap immediate social and economic benefits. Encouraging a move to cleaner energy, for example, whilst at the same time diversifying the tax base and improving the thermal efficiency of the housing stock should be, to use the technical term, a no-brainer.

So how does our existing strategic policy framework relate to environmental taxation?

The 2008 Energy Policy report was merely noted by the States and thus was largely ineffective. It made no secret of its wish to move the island progressively to a much greater dependence on low carbon electricity with a corresponding reduction in usage of fossil fuels. This policy goal was perceived by some as an attack on their businesses and they ran a successful campaign to discredit the policy.

As a consequence of this, the Energy Resource Plan which followed in 2012 presented a more watered down approach to the use of fossil fuels and was less specific about how carbon targets should be achieved – whilst still acknowledging the need for a lower carbon future. The destination was retained but the map had been torn up.

Notwithstanding that, in adopting the Energy Resource Plan, the States have agreed to a carbon emission target “to reduce Guernsey’s carbon dioxide emissions by 30% on 1990 levels by 2020; and 80% on 1990 levels by 2050”

A 30% reduction by 2020 is going to be challenging and may not be deliverable by simply relying on the undersea cable to achieve it. The Energy Resource Plan acknowledges that a form of carbon tax is likely to be necessary. Even if it were just about deliverable, the journey does not stop there by any measure.

The Plan also says that Guernsey may need to consider fiscal approaches at initial purchase of vehicles with taxes on on-going running costs.

Finally, energy efficiency is a primary strategic objective in terms of using energy wisely and efficiently and not wasting it.

So let’s move on to the PTR’s take on environmental taxation.

Environmental taxes fall into four categories:

  1. Transport taxes (excluding fuel) such as annual motor tax;
  2. Energy taxes (including fuel for transport) and including CO2 taxes;
  3. Pollution taxes, but excluding CO2 which is included in Energy taxes;
  4. Resource taxes .

It is the first two that would be feasible in Guernsey and those are the two that are mentioned in the PTR together with the reasons as to why they were dismissed.

On vehicle taxation, the PTR acknowledges that it could make a significant contribution to redirecting taxation from direct to indirect taxes. It suggests that such taxes are likely to be regressive – but as the Fiscal Affairs Department of the IMF points out, such a regressive element could be overcome by incorporating elements such as engine size, and by extension, vehicle emissions, into the calculations. It highlights that the strengthening of vehicle taxes to address environmental concerns is consistent with trends in other developed countries.

Well, it’s nice to have support in high places.

Many countries have both first registration duties and annual circulation taxes, which are designed to internalise costs and drive a move to cleaner vehicles.

It is vital to say that this would not represent a war on the motorist; it would be a redistribution of the tax base. And although there remain those who like to claim that there is a war on the motorist when any attempt is made to address the impacts that vehicles have on our society, the fact remains that many of the costs of vehicle use are externalised and are not even nearly covered by the existing tax structure. This may be a deeply inconvenient fact, but regardless of its lack of popularity it remains just that – a fact.

The response to parts of the Transport Strategy from a campaign group with motoring links and from garage owners, and the timing of the Transport Strategy, reportedly caused the joint boards to back away from consideration of motor taxation. However, it’s worth taking careful note of the fact that the consultation undertaken for the PTR shows that there was more support for environmental taxes than there was for GST.

The second possibility is a broad-based carbon tax.

A carbon tax is not complex in principle since it simply taxes the carbon content of various fuels. It is clear that any such intervention must be carefully judged and for it to be successful it would require preconditions. A carbon tax can also offset other taxes, but it would need to address other elements of the Energy Resource Plan, principally energy efficiency.

The argument, such as it is, in the PTR against a carbon tax on the grounds that it could be mildly regressive is somewhat odd. It seems there was no hesitation in proposing a consumption tax with its regressive characteristics. If that regressive tax was, at least in part, to be dealt with by reducing income tax then there is no reason that the same could not be true of a carbon tax, particularly if the taxation is strongly linked to a programme to improve energy efficiency for those at most risk.

Whilst improved energy efficiency is of value to all islanders and island businesses, it is particularly important to those at the lower end of the income scale. Data from the Household Expenditure Survey shows that households with an income of less than £26,120 annually spend £1,704 on home energy requirements, or 6.5% of their total income.

On energy taxes, the PTR states that, despite the aim of the States Strategic Plan to integrate fiscal, social and environmental policies and for them to be afforded equal status, the already large scope of the project and the limited resources devoted to it has meant that this review has not given detailed consideration to the use of any new such taxes, for example a carbon tax.

I don’t underestimate the significant work that has been put into this review at all, but when a primary stated aim is tax diversification, then putting all of one’s eggs in the GST basket was always going to be a little risky. That in itself perhaps should have been enough of an incentive to investigate what is a common plank of many taxation strategies.

As mentioned in the explanatory note to this amendment, the contribution of environmental taxes as a percentage of our total tax and social contributions income is just under 3%, while the EU average is over twice that. To put this into perspective, increasing environmental taxes to the EU average of 6.2% could decrease reliance on personal income tax by replacing some £15m even after set aside for energy efficiency improvements.

You will have heard from the Chief Minister’s statement on Tuesday that the Environmental Policy Group has been working on the establishment of an energy efficiency and advice centre, but that this work has stalled because no source of funding can be found.

While it is definitely something that is needed, the scale to be proposed by the Environmental Policy Group is modest in the extreme and even that is unfunded and in order to make worthwhile inroads into improving the thermal efficiency of the housing stock a more ambitious scheme will ultimately be needed. Ideally, a percentage of the money raised by a carbon tax would be used to fund such a program. It is also worth noting that Social Security pays out around a million pounds a year in winter fuel payments. Some recipients of this payment will live in energy efficient homes. Other recipients will rely on open coal fires for their heating, where up to 90% of the heat goes straight up the chimney. Neither situation can be considered an ideal use of funds. Therefore the amendment includes consultation with SSD to examine how improvements can be made to increase the effectiveness of these funds.

It may be helpful to examine other experiences of environmental taxation in the form of a carbon tax.

In 2008 British Columbia in Canada implemented what they call a Carbon Shift Tax. The evidence from British Columbia is that the policy has been an environmental and an economic success story. The tax, which is payable on all fossil fuels and fossil fuel derived energy, started out low and rose over a period of 5 years. The tax was designed to be revenue neutral and was matched by corresponding decreases in other taxes including personal income tax. It has been very effective in tackling the root cause of carbon pollution: the burning of fossil fuels. A five-year review showed that fossil fuel consumption had dropped by 17% in British Columbia, while in the rest of Canada consumption had risen marginally.

The approach that British Columbia took, that is, giving notice that the tax would be introduced and starting it at a low level with gradual increases was beneficial. It gave people and companies notice that the price of carbon-intensive energy would be increasing and allowed time for efficiencies to be made. The New York Times called the carbon shift tax “the most sensible tax of all” and it has gained support across the political divide from left to right.

As an object lesson in how not to go about things, it’s hard to find a better example than Australia. I don’t intend to relate the whole story, which centred around changing political parties and complex arrangements with mining companies and power stations, but it is nevertheless instructive to note that in the two years the tax was in operation, carbon emissions fell, and when the law was repealed they started to climb back up. This proves categorically that the tax itself was effective.

As the majority of our electricity supply is low carbon, a carbon tax should incentivise a switch from oil, gas and coal to electricity. With longer term aims for macro renewable generation, such a switch is beneficial in terms of energy security.

Of course if a carbon tax is successful in its aim to reduce fossil fuel consumption then the tax take will fall, unless of course the rate is increased or the offset against other taxes is adjusted.

However, there are gains to be had in other areas. For example, poorly insulated and heated homes are detrimental to health in many ways, including poor internal air quality and black mould. A comprehensive scheme to address these issues is vital and will reap benefits in terms of health expenditure.

This is just one example of the many ways the impact of environmental taxes can benefit society in the bigger picture: because good environmental policy focuses on sensible use of resources, there is almost always an economic pay off to both individuals and governments in the long-term, and sometimes the short-term too. In summary, there is no good reason to not investigate such taxes, especially in our current financial situation with our dependence on personal income tax.

I ask members to support this amendment today which directs T&R to return to this assembly before the end of this term with proposals for environmental taxes in order to diversify our tax base, to improve the thermal performance of our housing stock and to benefit the wider environment.

 

TEXT OF AMENDMENT

STATES OF DELIBERATION 24th March, 2015 Billet d’État No. IV AMENDMENT

Proposed by: Deputy Y Burford

Seconded by: Deputy S J Ogier

Treasury and Resources Department & Social Security Department Planning a Sustainable Future – The Personal Tax, Pensions and Benefits Review

To insert the following proposition between Propositions 38 and 39:

“38A. To direct the Treasury and Resources Department, after consultation with the Environment Department, Social Security Department, Commerce and Employment Department and Policy Council as appropriate, to lay before the States no later than March 2016 proposals to diversify the tax base by introducing or increasing environmental taxes, and to agree that a comprehensive energy efficiency programme to assist in mitigating any possible regressive effects of such taxes on low income households should form an integral part of such diversification.”

Explanatory note Environmental taxes currently make up approximately 2.9% of the total tax and social contributions income. For comparison, the EU average is 6.2% with some countries at 10%. The substitution of environmental taxes for other taxes would assist the stated aim of diversifying the tax base. The mildly regressive impact of a carbon tax or similar could be compensated for by a comprehensive energy efficiency programme which would reduce energy consumption, improve the housing stock and address health issues resulting from poorly insulated and under-heated homes.

Paid parking and behavioural economics

When it comes to transport choices, economic factors influence people’s decision-making – but not necessarily in the ways that you might assume.

To demonstrate how behavioural economics affects decision-making, I’d like to talk you through a few imaginary scenarios.

Scenario 1 is played out under the status quo. Michael lives in St. Sampson’s and works in Town. He owns his own car and he usually fills it up with petrol every Saturday when he does the weekly shop. One of his colleagues, Susie, has recently been extolling the virtues of getting the bus to work (this is an imagined scenario, after all!) so one morning he contemplates following her example. The money that he has already invested in his car (to buy it, insure it, maintain it and refuel it) is a retrospective cost, or sunk cost – in other words a cost that cannot be recouped. By contrast, taking the bus is a future avoidable cost – in other words, money that hasn’t yet been spent and doesn’t necessarily need to be spent – to the tune of £2 for the return fare for the day – provided of course he can show he is local. He’s already paid for his car and anyway it’s more convenient than the bus, so he decides Susie is slightly batty and drives to work as usual, parking in a 10hr bay at North Beach.

Scenario 2:The States of Guernsey have voted in fareless buses – but not user pays long-stay parking, which remains free at point of use. Michael’s colleague Susie is banging on about the virtues of commuting by bus more than ever now they’re free and more frequent and reliable, with improved coverage and free wi-fi thrown into the bargain. Michael secretly quite fancies Susie, so one morning he again considers catching the bus to work instead of driving. The buses are certainly more convenient than they used to be – possibly, if he’s honest, even more convenient than driving to work, as he wouldn’t have to leave for Town so early and then walk the five minutes from North Beach – and now there’s no associated cost to put him off. Yet he still chooses to drive to work. Why?

If he were a truly rational creature, the money that Michael had already spent on his car would have no bearing on his decision on how to get to work: he would make the decision based purely on the merits of each of the two options he’s considering. The problem is, he’s not a truly rational creature: he’s a human – and therefore the idea of wasting money he’s already spent carries much more weight in his decision-making process than the idea of what he could potentially gain.

It’s like the time that he spent £100 on a ticket to see One Direction (on that memorable but fictional occasion they gave an open air concert in Guernsey). The day of the concert arrived: it was cold, wet and miserable, Michael really wasn’t in the mood, and to top it all, he’d just come to the realisation that he didn’t even like One Direction… he’d only bought the ticket because Susie had told him she was going, and now she’d just texted to say she wasn’t going after all. But because loss aversion is such a powerful human instinct the thought of effectively wasting his £100 meant that he went to the concert anyway. The prospect of spending his time more enjoyably having a warm, cosy and contented evening in the pub with Susie didn’t even stand a chance when weighed against the £100-already-spent factor. So he stood in the rain watching a band he didn’t like, having a miserable time. But at least he hadn’t wasted that £100.

Anyway, I digress… There’s one more scenario, which I’ve given the creative title of Scenario 3. Imagine if you will that the States has voted in an integrated Transport Strategy complete with fareless buses and user pays long-stay parking. Susie has of course been singing the praises of the new bus service and Michael is once again considering his travel options over breakfast. On the one hand, the fact that he’s already invested a lot of money in his car is a very compelling reason to use it. He wouldn’t want to waste that money, after all… On the other hand, there is now a cost associated with driving to Town, to the tune of about £5 to park at North Beach while he’s at work. This is a future avoidable cost: it’s a cost that he hasn’t yet spent and he can easily avoid spending it. So on this occasion, that’s exactly what he decides to do. Instead of jumping in his car at 7.30am he catches an 8.15 bus – by happy coincidence the very same bus that Susie is on… I’ll leave the story there, except to mention that Michael was very, very glad he got the bus that day!

Now Michael is of course a fictional character, but his decision-making process is entirely real, as evidenced by a huge body of science that falls under the title of behavioural economics. We may like to think of ourselves as rational beings when it comes to making decisions, but all the studies and research show that in fact we make decisions under the influence of a variety of different biases that we’re probably not even aware of.

What my three scenarios demonstrate is that we cannot for a moment underestimate the bias in our society towards using the car. No matter how many carrots we dangle in front of someone, we are very unlikely to be able to simply encourage them into using alternative forms of transport, because the bias towards their car generally carries far more weight than any benefit they stand to gain from the alternatives. The most effective way to overcome the bias is to use that same human instinct – the instinct to avoid loss – on the other side of the equation. People are far more likely to use alternative transport if by doing so they can avoid spending a fiver. Suddenly it’s a different proposition. They can avoid spending £100 a month. Under an integrated and balanced transport strategy, many people will choose to avoid this cost and people’s behaviour will change.

#40in2016

A hashtag for the start of a campaign.

We’re halfway through the political term, and hasn’t time flown! If the next two years go as quickly, then in no time it will be the 2016 general election.

Back in 2012, 11 women stood for the role of People’s Deputy and five were duly elected, two of whom topped the polls in their districts. There were 77 candidates overall, rather unevenly spread throughout the seven electoral districts.

 

There are probably around 20,000 women on this island eligible to stand for election – surely it should not be too great a task to find 40 (or more!) with the desire to serve their island for the 4 years until 2020.

Over the last two years I have undertaken a little unscientific research as to why so few women stand for election and here are some of the recurring themes. Some of them are gender specific, some affect men and women equally:

  • Women often underestimate their ability. This has actually been shown to be the case in scientific studies as has the fact that men overestimate theirs. Something worth remembering.

 

  • There is a reluctance to open oneself up to perceived personal attacks, in general, but specifically on social media. This is understandable but my experience is that on the rare occasions that people are unreasonable – usually while hiding behind a pseudonym – other posters quickly rally round in support. I am also heartened that while the national media in the UK tends to still focus on what a woman politician is wearing rather than what she is saying or doing, this does not appear to be an issue at all in Guernsey.

 

  • There is concern for how the job will fit in with children as women are still the primary carers. But there’s good news. Most meetings fall within school hours. I tend to do most of my reading, emails and preparation work in the evenings after my son has gone to bed. TV is a thing of the past, to be fair, but who ever lay on their deathbed wishing they had watched more episodes of Eastenders anyway? The only time I have to arrange childcare is during States Meetings, which average three days each month (Thank you Ollie!)

 

  • There is a fear of making speeches, going on the radio, being interviewed for TV, doing the hustings. Tell me about it!  I was petrified at first. But actually, like most things, the more you do the easier it gets. More importantly, what tends to happen is that people want to speak to you about something that you are passionate about – and it is way easier to talk about things that you are knowledgeable about and that matter to you, because there is the desire to get the message out and the confidence in the subject – even if there is a large microphone in front of you!

 

  • While many women have areas of interest and knowledge directly relevant to the role of Deputy, it is not uncommon to have some knowledge gaps surrounding the workings and history of the States. Of course self-study and research can address this, but as part of this campaign we plan to facilitate educational courses for potential candidates.

 

If you are interested, please get in touch

Women in Politics – It could be you

Have you ever considered standing for election?

Do you have an interest in how our island is run?

Are you put off by uncertainty about the role of a Deputy or a lack of knowledge about the nuts and bolts of Government?

Do you wonder how the role would fit in with family life?

Do you like the idea of standing but back away because of the inevitable media attention that goes with the job?

Why not dip your toe in the water and come and find out more?

Currently just one tenth of deputies are women. Let’s change that in 2016.

For more info please email me at yvonne.burford@deputies.gov.gg

Inspiration

In the course of my research for the Minority Report I came across many videos of how things are done elsewhere. It’s really important to have a plan that is tailored and designed for Guernsey and of course not everything that works in one place will work in another, but there are always some common themes. One of my particular favourites is this one by the then Mayor of Bogota, Enrique Penalosa.