David Parker’s seemingly odd decision to request the Revenue portfolio from the Prime Minister when she appointed her new Cabinet now makes sense.
The Briefings to Incoming Ministers released yesterday, show that work is well underway on the development of an environmental tax regime which would be launched with a consultation document next year.
As one of the big-thinkers in Cabinet, Parker would undoubtedly relish the opportunity to further the use of the tax system to affect environmental outcomes.
In their briefings, both Island Revenue and Treasury reference the proposal.
Inland Revenue says in its document that the key question is “when” to introduce the taxes.
Parker is also Minister for the Environment and has been a big advocate of cleaning up dairy’s nitrate pollution of waterways.
Environment taxes could be a further stick to get farmers to act.
He will have the arguments of Sir Michael Cullen’s 2018 Tax Working Group to help him.
The Group’s interim report noted that the OECD found New Zealand to be a relatively low user of environmental taxes ranking it 30th out of 33 OECD countries for environmental tax revenue as a share of total tax revenue in 2013.
Currently, transport charges such as road user charges and registration fees are registered by the OECD as environmental taxes along with transport fuel taxes.
But on the big issue of Greenhouse Gas Emissions Cullen’s Group said that though the Emissions Trading Scheme needed tweaking there was no reason to replace it with a carbon tax.
But where Parker might have a much closer interest is in suggestions from the Group that taxes on waterway pollution and “water abstraction” could be considered.
The briefing from the Ministry for the Environment says on freshwater and sustainable land management the Government needs to agree on an approach to water allocation, including addressing Māori rights and interests as a priority.
But the priority will be cleaning up the waterways.
Sir Michael’s Tax Working Group estimated that a $2 per kilogram charge on leached nitrates could raise approximately $270 million per annum at current leaching rates and assuming 100% coverage.
That could be expensive for some farmers.
A Lincoln University study in 2017 found that intensive Canterbury dairy farms leached between seven and 16 tonnes of nitrates a year.
That would mean they could face taxes of between $14,000 and $32,000 annually.
And the Group supported the idea of auctioned tradable water rights.
“The Group acknowledges that water abstraction is a particularly challenging policy area in New Zealand, owing to a range of different interest in the resource,” their report said.
“ Water is an essential resource for life, for recreation and commerce.
“Water policy also impacts on Māori rights and interests.
“If Māori rights and interests can be addressed, water tax instruments (including auctioned tradeable permits) could be useful tools for improving the efficiency of water use.
“They could also be a significant and sustainable source of revenue over the long term.”
Treasury lists work on environment taxes as one of three notable projects underway with Inland Revenue.
“Environmental taxes: developing a cross-agency framework for environmental taxes,” it says in its briefing.
“New Zealand currently collects a relatively low share of the revenue from environmental taxes.”
Inland Revenue lists “the role of environmental taxes and what an environmental tax framework should look like” as one of the critical issues facing the Department.
It says “a major focus is working towards producing a framework on when to apply environmental taxes.”
“We are working initially with other government agencies on an across-agency framework,” says IRD.
“An update report to Ministers is planned for late 2020, with a consultation document in 2021.”
There is, however, a subtle hint in another briefing paper, from the Ministry of Primary Industries, that “sticks” like environment taxes may not be so effective in persuading farmers to change the way they farm to achieve better outcomes.
It says there are still areas to progress in David Parker’s “Healthy Waterways” package “which will likely include decisions on allocation (nutrient discharges into waterways and water takes) and addressing Māori rights and interests.”
But it adds: “Change of this magnitude will take at least a generation and require sustained focus and effort.
“Taking a partnership approach and ensuring a consistent regulatory framework will enable the agriculture sector, including farmers, growers and landowners, to make fully informed decisions that will help minimise the economic, social and cultural costs.”
And in its brief to the Minister of Rural Communities MPI says “the potential impacts of land-use changes on jobs, services and social cohesion are a source of concern for some members of our rural communities.”
It hints that the Government may need to provide funding to make up for the possible negative economic effects of climate change emission targets and nitrate limits.
“There is an opportunity to work with and alongside rural communities to identify how community aspirations for the future can be realised,” it says.
“Identifying what matters to each community allows us to respond to challenges by considering specific mitigations, including potentially publicly funded investments.”
Taken together, these briefing papers point to the increased emphasis we will see from this Government over the next three years on environmental matters.
But it won’t just be rural communities and farmers who are affected.
Two briefings – one from the Ministry of Business Innovation and Employment and the other from the Ministry for the Environment point to the production next year of the National Adaptation Plan which will be the guide on how New Zealand is going to achieve the Greenhouse Gas Emission reduction targets that the Climate Change Commission has calculated we will need to undertake to reach our 2050 net-zero emissions target.
Tax is going to be at the centre of all this. No wonder David Parker is there.