How green are these taxes?

Last November, in its budget for this year, Government announced the introduction of what it called new taxes to protect the environment. Complete silence followed after mentioning these taxes as we geared up for another election, this time to elect five Maltese representatives to the European Parliament and to elect local councils in one-third of the country.

Once these elections passed, Government showed great haste in declaring that it was ready to go ahead and introduce what it called "eco-contributions" to raise money to partly finance waste management and to instill a national awareness to produce less waste. Parliament had its sessions increased and started meeting morning and evening to pass the necessary legislation to impose these new taxes. Government also announced the setting up of working committees with the private sector to implement these new taxes.

Governments in the European Union and beyond have increasingly been using green taxes to persuade people to change their behaviour and adopt a lifestyle which is friendlier to the environment. Imposing taxes on economic activities that harm the environment is one way to influence environmental behaviour. So why don't we all applaud what the Nationalist government is doing with the introduction of these new taxes? How come business organisations, trade unions... even environmental groups... have come out to criticise these new taxes?

Is it because the Nationalist government has used the wrong methods to introduce these taxes? Is it because the taxes themselves are badly designed? Or is it because Maltese society is not yet ready for these taxes?

Government should have used democratic methods to introduce these new taxes. It should have consulted widely and worked closely with the social partners and civil society to design these taxes well and to prepare our citizens, not only to accept these taxes but actually to support them.

Take the Czech Republic, for instance. Next year it will embark on a comprehensive programme of environmental tax reform. New taxes will be introduced in January 2005. The Czech government in January 2003 set up an inter-ministerial working group on environmental tax reform. It has been meeting regularly for the last 18 months and includes representatives of the ministries of finance, environment, industry and trade, labour and social affairs, transport as well as representatives of trade unions, industrial associations and academia.

Last December the working group presented its study to serve as a basis for the designing of green taxes in the Czech Republic. Meanwhile, other working groups have been involving the active participation of various stakeholders. The Nationalist government in Malta has certainly not taken the democratic and gradual approach of the Czech government and has instead simply announced these new taxes, expecting the business sector, the trade unions, the environmental groups, the media and the general public to support such enlightened policy making.

It's the deficit, stupid

Look at how the Danish Ecological Council has been working on a Green Budget Reform. The aim of the Council's proposal is to change the tax system in a more environment-friendly direction without changing the social distributional effect on society, without raising the overall tax burden or without disturbing the competitiveness of the Danish industry.

The Council's proposals are designed in a way that when environmental taxes are imposed on households, the revenue from those taxes is recycled to households, mainly by lowering income taxes. The same is done for industry where the revenue is returned as subsidies for environmentally positive arrangements, e.g. energy savings and as subsidies accorded to the labour expenditures to reduce the costs of labour. The proposals to raise the level of existing environmental taxes concentrate on energy use, transport and the use of hazardous chemicals, because these areas are the main cause of many environmental problems.

The taxes being introduced by the Nationalist government can hardly be called "green". Green taxes are usually not revenue-raisers. A key component of any form of environmental taxation is fiscal neutrality, so that the overall tax burden is not increased. Most policymakers favour using environmental taxation to reduce taxes on labour. Another key component in the design of green taxes is that the revenue raised should go towards financing environmental polices and not end up in the melting pot of the Finance Ministry. They are also usually just taxes and do not hurt middle and low-income households as the taxes imposed by the Nationalist government will do.

The purpose of an eco-tax is to encourage consumers to buy environment-friendly products by discouraging them from buying more harmful products. For example, Malta already has an eco-tax on leaded petrol, introduced to encourage sales of unleaded petrol. Belgium introduced an eco-tax on disposable razors and disposable cameras to encourage use of non-disposable ones.

The eco-tax proposed by the Nationalist government imposes a blanket tax on all products, i.e. all fridges will be taxed by Lm12, all tyres by Lm2, all batteries by 10c, etc. Therefore the law cannot be categorised as an eco-tax but as a tax on consumption, in other words another form of VAT.

An eco-tax is normally enforced where a system of waste separation and recycling operates on a national level. This is not the case with Malta, which raises questions as to where the money collected from this tax will go? Will it be used for more reports? For the setting up of more centres and institutes on the environment that will employ more cronies?

After all, even the Parliamentary Secretary in the Finance Ministry, Tonio Fenech, talking to this newspaper last Sunday, bluntly described these taxes as revenue-raisers and nothing more - revenue to be swallowed up by the public deficit and for government recurrent expenditure: "We still have a Lm95 million deficit and we are still living beyond what we can afford. There is a cost to everything. If we don't want to increase our deficit and don't want another Maghtab landfill then we have to pay for it."

And only a few months ago we were being told that the country's finances are on a sound footing and that once returned to government, the Nationalist Party would ensure that we all live happily ever after.

evaristbartolo@hotmail.com