The government has introduced the so-called "eco tax" and all hell has been let loose. It is a tax that none of the social partners have declared to be in favour of. Not surprising since none of the social partners feel it is obliged to propose to the government any taxation - they only feel it their duty to criticise taxation (after all, no one likes to pay taxes).

After all, none of the social partners have submitted any concrete proposals on how to reduce the fiscal deficit, other than those, which hurt others, and not the interests of the persons they represent. The "not in my backyard" (nimby) syndrome was very evident here.

A major criticism levelled at the government on this issue is that there was no effective consultation with the social partners. These could be important issues for those that enjoy emphasising their role in the process dialogue process.

The air was polluted further (but no eco tax has been paid in this case) by comments made by those who should know better, that the revenue the government is seeking to raise from the eco tax is only being used to finance the Maltese embassy in Brussels.

However, the real issue is exclusively economic. Does the eco tax serve an economic purpose?

It needs to be stated at the outset that, irrespective of what some people are saying today, a number of persons in the private sector had asked the government to introduce an eco tax during the consultation process that was being held in preparation for EU membership. It was seen as one of the ways of encouraging the consumer to use for example glass bottles that are returnable instead of aluminium cans or plastic bottles.

I can claim to have first-hand information of this, having been present when this point was made. It might be that some have forgotten about this; I am only making this point to highlight the fact that the government was not acting in a vacuum.

One can emphasise this aspect further (that the government was not acting in a vacuum) when one considers that several in this country claim that there is too much dirt around and that something needs to be done in this regard to support the tourism industry.

In effect, the answer to the question as to whether the eco tax serves an economic purpose, needs to factor in the possible external effects of the tax. The protection of the environment and the benefits that this could bring to the tourism industry is one such external effect. It can never be quantified fully but it is known to be there.

One potential side effect of the eco tax is a drop in consumption. According to economic theory, taxes tend to lead to deflation - something we can ill afford as the economy is seeking to get out of the effects of the international economic slowdown.

This argument, with respect to whoever is putting it forward, is not correct. The eco tax is a tax on certain items. With the range of choice that the consumer has today, it is very easy for him to shift consumption to the non-taxed items. This is not a tax that hits directly disposable income, nor does it hit all consumption. The selective nature of the tax ensures that its introduction is not likely to result in deflationary effects in the economy.

Another economic argument on the eco tax is whether it is equitable. Does it tax persons indiscriminately, irrespective of their actions or their income? The answer is a definite NO.

As already highlighted, the tax is levied only on the consumption of certain items; items which are known to harm the environment. They are not basic items, which consumers would describe as necessities.

In fact, the expectation is that higher income persons are likely to spend more on such items than lower income persons. So the tax is levied on those that consume specific items and is expected to be higher on those that spend more.

Hence the title of this week's contribution, The Polluter Pays. The eco tax, in whatever form and manner it is applied (presumably after further consultation with the social partners), is fair.

It may be stated that it should have been introduced earlier. It seeks to address an issue that is fast becoming a major concern for the Maltese and an issue that is potentially a big threat to one of the motors of our economy.