First Published in The Australian Financial Review, 1998

In rushing to implement a Goods and Services Tax (Value Added Tax) Canberra is ignoring serious environmental issues. DAVID LANGSAM analyses the impact of the tax on the economy and the environment.

With the Australian Democrats stranglehold on the senate restraining the Government's headlong rush into a goods and services tax, it is most surprising that the previously medium-green party publicly underestimates the GST's assault on both the environment and Australia's economy.

The good news for longer-sighted Australian business is that, as an after-thought, the environmental impact of the so-called flat rate tax is the subject of one of the three References Committees Inquiries.

The Government, in claiming its GST-based tax reform package is one for the new millennium, ignores the real challenge for our economic and social future - global climate change caused primarily by power generator and vehicle emissions, along with industrial pollution of land, air and water.

The cost to Australian business in not being prepared for climate change nor being ahead of the pack in new technologies is immeasurable. Australian research and development should be leading the world and in particular exporting completed renewable resource technologies to our nearest neighbours.

Australia is wasting its most easily exploited resources: education, high technology, innovation, space and abundant renewable energy. If any country should be at the forefront on solar and wind technologies, it should be this vast continent.

Instead, we produce 7.2MW of wind power compared to India's 800MW, the United States' 1,601MW and Europe's 4,500MW. Danish consultants, BTM forecast 20,000 MW will have been installed around the world by 2002, more than half in Europe - a rapidly expanding multi-billion dollar market - and we're not in it.

Boral Energy announced only last week (Nov 27) that it had developed a new method of creating the most expensive parts of the photovoltaic cells, the silicon layer which with two other developments in the pipeline should reduce domestic installation costs by two-thirds. But the anti-environment Howard-Costello government can take little credit for that work.

Why did the Government announce $30million for solar technology for Indonesia during the election campaign and not promote Australian businesses selling renewable technologies to our nearest neighbours?

Consider all the lost sales of solar and wind power technologies and pollution abatement equipment, snatched by European and American companies, along with the staggering human and insurance costs associated with climate change doubling the number of bushfires, and one begins to get the picture.

The CSIRO expects double the number of days over 35°C in south eastern Australia by the year 2070, with a simultaneous decline in rain. In 1983, the Ash Wednesday bushfires claimed 76 lives and according to the Insurance Council of Australia cost more than $320 million. The 1994 New South Wales bushfire loss was $56 million. Is there a connection between Australia's low fuel prices and high per capita greenhouse gas emissions?

Throwing out the targetable and differential wholesale sales tax regime is simplistic rather than simplifying. The existing system can be reorganised to encourage better corporate and personal behaviour and discourage bad behaviour, but an across-the-board flat rate GST wastes that opportunity. (It is curious that the Government has no idea how - or if - it will tax share and financial transactions - despite the sector's economic significance.)

The Government's tax package does not even mention the environment and Labor's pre-election response was weak, to say the least. The Greens have called for carbon-energy taxes and the Australian Democrats have said they support "a version of a carbon-energy tax hypothecated to reducing payroll tax". The Democrats also said they would oppose a GST on food and, for the sake of the environment, wouldn't allow fuel price reductions. An excellent Democrat election idea was to allow a business diesel fuel rebate, conditional on a whole of business environmental impact audit.

If the Government was serious about a flat rate tax, it wouldn't exempt tobacco, alcohol, fuel and "luxury" vehicle taxes from the GST. But these huge revenue earners are conveniently considered "undesirable" activities. Surely destroying one's own home is also undesirable.

Environmentally damaging activities should be taxed to discourage those activities and environmentally enhancing ones should be rewarded. Given that the Government has signed up to public behaviour modification through taxation (alcohol, tobacco and leaded fuel), why not use it effectively?

Plastic shopping bags should cost something... anything is better than giving them away. There should be no such thing as a free lunch wrapper. Many of the plastic disposable supermarket items targeted by the government's election campaign deserve to be taxed.

As for four wheel drive vehicles, the Australia Institute's Clive Hamilton says the "urban assault vehicles... should be taxed and taxed heavily" not just brought into line with other cars as Labor proposed. But taxing expensive cars is not necessarily the best option. A $60,000 fully recyclable low fuel consumption BMW could be more environmentally sound than a $30,000 Holden. So perhaps luxury cars should be taxed, but through lower fuel consumption they could avoid the carbon/energy taxes paid by cheaper gas-guzzlers.

Instead of going back to the 1960s for a goods and services tax, we should revamp the existing regime to encourage sunrise industries and phase out sunset industries.

When the United States introduced its Clean Air Acts in the 1990s, American industry had to turn to Germany for the technology, because that country had gone tough on pollution 20 years earlier. Germany has some of the world's toughest regulations and despite high wage rates, German companies are profitable, global technological leaders.

We do need a taxation review for the new millennium, but we don't need one dragged up from the middle of the outgoing century that ignores both our planet and our global competitors.

As for commodities being cheaper under a 10 percent GST with the wholesale sales taxes revoked, one retailer who has done the calculations says that the cost of his products remains about the same once overheads are included in the retail price. I am yet to see a shop reduce prices, other than as a short-term marketing ploy.

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