The purpose of the tax system isn’t just to collect revenue, it’s to shape society in ways we see fit. It’s no accident that fresh food is excluded from the GST and it’s no accident that the tax on alcohol is higher than the tax on water. It’s also no accident that some of the biggest oil and gas companies in Australia pay virtually zero tax. We get the tax system our parliaments can agree on.
In turn, Australia’s tax system is shaped by the distribution of power within our politics and economy. We tax company profits at lower rates than we tax workers’ wages; we tax income from capital gains at half the rate we tax ordinary income; and we exclude private school fees from the GST but include public transport. We had a carbon tax and then we didn’t. Tax policy is the pointy end of power politics.
And, because it’s considered impolite to talk about power in Australia, we usually cloak our conversations about tax in the language of economics. Indeed, the main role of economics in Australian public debate is to dress up the self-interest of power as being in the national interest of the populace. Put simply, economic language helps to conceal the ugly reality.
The recent flare-up of interest in taxing electric vehicle use is a classic example. For decades economists have argued Australia should introduce “mass distance pricing” for heavy vehicles. When you double the weight of a vehicle, the amount of damage it does to the road increases by 16 times. As a result, a heavy vehicle can do up to 20,000 times as much damage to a road as a passenger car. It’s a big problem.
But trucking companies pay a far lower rate of fuel tax than ordinary Australians. While the rate of fuel excise you pay when you fill your car is 42.3 cents per litre, for vehicles weighing over 4.5 tonnes it’s just 25.8 cents per litre. And while the rate of fuel excise paid by passenger vehicles is indexed to inflation, under the Coalition the road user charge paid by heavy vehicles has actually been reduced.
If we want to encourage more people to buy low-emission vehicles, we should subsidise them
Those who support a road user charge for electric vehicles are right to argue that someone has to pay for the building and maintenance of our roads, but to suggest taxing the pitifully low number of electric cars that are currently on our roads is simply bizarre.
Undercharging trucks for the damage they do to our roads has led to a significant shift in Australia’s freight movements from rail to road. Each night more than 3,000 trucks now drive between Sydney and Melbourne while the share of rail freight between those cities has fallen from 20% to 2% since the 1990s.
According to the National Transport Commission, the body that sets the fuel tax rate paid by trucks, “government expenditure on roads had increased to an extent that heavy vehicle charges would have needed to increase by 11.4% for 2020–21 to achieve full cost recovery”. But fuel taxes for trucks haven’t increased, they’ve fallen. Hence the rush to tax electric vehicles.
If Australian governments were going to take economics or equity seriously, when it came to charging for transport we would emulate the New Zealand system of mass distancing pricing in which heavy vehicles pay for around 37% of land transport taxes. In Australia heavy vehicles pay 12.5%. Likewise, if we were paying attention to economics and equity we would look to remove the GST from public transport, invest heavily in more public transport, introduce congestion charging in our CBDs and – most obviously – introduce a carbon tax on all fossil fuels.
But Australian governments rarely take economics seriously when doing so would impose costs on powerful industries. If they did, we would not only have a carbon tax, but a mining super profits tax, higher unemployment benefits and cheaper childcare.
Conservatives who are quick to oppose new taxes and regulation have been quite excited about the idea of new taxes and regulation for the owners of electric vehicles. Like everything to do with fossil fuels in Australia, the debate about taxing electric vehicles is more about choosing sides than consistency. Subsidies for coal, gas and ethanol have never bothered the Australian right in the way subsidies for renewable energy seem to.
In Norway they’ve taxed carbon pollution, not clean air. An Australia Institute Nordic Policy Centre paper, launching via webinar on Wednesday, details the incentives offered by the Norwegian government to make electric vehicles an attractive alternative. An electric Volkswagen Golf in Norway is cheaper than its fossil-fuelled counterpart, and plug-in vehicle sales hit a record 82% market share of new car sales this September.
Other countries are using the willingness of some people to pay a personal premium to buy electric cars as a way to drive down greenhouse gas emissions at very low cost to government, but Australia seems determined to hold back the tide of technology.
And while it’s true that as the number of electric vehicles rises in Australia fuel excise collections may fall, that doesn’t make it a good idea to tax the use of electric vehicles. The amount of money Australians spend on GST-free items such as private school fees and private health insurance has risen, but that doesn’t mean we have to increase the GST on books and clothes.
We tax cigarettes and alcohol because we want to discourage their use. We subsidise vaccinations and pharmaceuticals because we want to encourage their use. If we want to encourage more people to buy low-emission vehicles we should subsidise them and if we want to discourage people from buying them we should tax them.
And if we want to find an equitable and efficient way to charge for our roads, Australian governments should listen to the National Transport Commission and significantly increase the taxes paid by heavy vehicles. Making trucks pay for the damage they cause will raise a lot more money, deliver a large reduction in emissions and reduce the death toll on our roads. But it would upset powerful industries, so don’t hold your breath – even as the subsidised diesel particulates fill your lungs.
• Richard Denniss is the chief economist at independent thinktank, the Australia Institute. @RDNS_TAI