How do you raise carbon taxes without hitting labourers more than lawyers?

Caveat: Good luck with handling this one in October’s budget, Paschal Donohoe

As much as Minister for Finance Paschal Donohoe may wish it were otherwise, a rise in carbon taxes is firmly on the agenda for Budget 2020. Photograph: iStock

As much as Minister for Finance Paschal Donohoe may wish it were otherwise, a rise in carbon taxes is firmly on the agenda for Budget 2020. Photograph: iStock

 

For years, the Government has dodged, ducked, swerved and skipped it in every way possible. But the issue of how to implement a significant and behaviour-changing hike in carbon taxes to tackle damaging emissions can be avoided no longer.

As much as Paschal Donohoe, the Minister for Finance, may wish it were otherwise, a rise in carbon taxes is firmly on the agenda for Budget 2020. Hiking carbon taxes without clobbering the poor is a big, bad, agony-inducing political nettle. But, come October, Donohoe will have to breathe deeply and grasp it, ointment at the ready.

Carbon taxes are, in practice, dirty fuel taxes. Environmentalists, economists and policy experts all seem to agree that they are an important part of the mix in reducing emissions. But they make everyday things like transport and heating more expensive, so everybody feels the pinch. The poorer you are, the sharper the pinch.

One potential solution is for the State to simply scoop up the extra taxes and use them to write refund cheques and post those directly back to householders

People may say they want the Government to lead the way in tackling climate change. But they sometimes appear less willing to accept the changes that are necessary to achieve this, such as higher carbon taxes. Politicians are right to be afraid, very afraid, of the issue. It appears to have the potential to send ordinary people barmy.

France went up in flames with the yellow vest protests when the government there tried to push fuel tax increases through. That scared the living daylights out of every other electorate-fearing government in Europe. The sense of dread in Government Buildings must have been even more acute than in other countries.

The political system here is as fractured as a Manchester United dressing room, which makes the Government’s relative stability of recent years appear all the more remarkable. But the system cannot defy gravity forever and its vulnerability to popular forces may catch up with it in time. The socialist left is lining up to reject increased carbon taxes as a popular election issue for its base. Meanwhile, the water charges debacle showed where that type of political conflict can lead in Ireland.

The State’s carbon tax was introduced at €15 per tonne in 2010, and the cash raised was initially meant to be used to offset employment taxes. Then the banking sector dragged the rest of the economy over a cliff, the troika arrived in town to bail us out, and the revenues got redirected to plug the gaping holes in our general fiscal bucket.

Carbon tax was raised to €20 a tonne – still low in international terms – in 2012. And that is where it has stayed since. The need for taxation restraint as the economy entered its nascent recovery ensured it couldn’t be touched for a few years. Then the trouble over water charges really kicked off, making a major play on carbon taxes impossible. No government can fight an unpopular taxation war on two fronts.

Donohoe was heavily criticised by environmentalists for not raising the tax in last year’s budget. But the admission this week by Richard Bruton, the Minister for Climate Action and Environment, that the State is on the hook to buy €150 million in carbon credits to offset missed emissions targets next year gives Ministers no choice.

Policy mix

The Government has already accepted a recommendation from its Climate Change Advisory Council to quadruple carbon tax by 2030. Bruton, meanwhile, has warned that the tax could reach €265 per tonne within 30 years.

A lot can happen in three decades, and yet-to-be-invented technologies may help humanity crack the carbon emissions nut in the meantime. Until then, carbon taxes will likely become an increasingly crucial part of the policy mix. If the climate situation worsens faster than expected, the hikes could be large.

So how do you impose steep increases in carbon taxes without hitting Larry the Labourer proportionally harder than Lorcan the Lawyer?

Let’s say both drive the same distance to work, and so use the same amount of fuel. That will attract the same increase in tax for both of them, but Lorcan obviously earns much more, so it will have less of an impact on his standard of living.

Like a lot of lolly-loving Lorcans, he may even be able to afford an electric car, compared to Larry’s old belcher, so he could be even more insulated from the effects. It may also be the case that Lorcan’s expensive house is better insulated than Larry’s, so he could be less affected by heating bills, even though he has more capacity to pay.

One potential solution, proposed by the Green Party and others, is for the State to simply scoop up the extra taxes and use them to write refund cheques and post those directly back to householders. This fee and dividend model will be used in Canada, where it is estimated that households could receive annual cheques of between 300-600 Canadian dollars (€200 to €400), depending upon which province they live in.

Maybe lower paid households could get bigger refund cheques than richer households, who might be fine with none at all. But if we use our refund cheques to book an extra Ryanair flight to the sun, what’s the point of it at all?

So perhaps the cash could be ring-fenced to pay for vouchers for energy efficient retro-fitting, or towards the purchase of electric cars. Or maybe it could be used to offset income taxes, helping the economy and creating more employment for workers.

But don’t expanding economies kill the planet even faster? It’s a total minefield.

Good luck with handling this one in October’s budget, Minister. There is just your election prospects, the love of the people, and our share of responsibility for the future of the planet and all of humanity riding on it. No pressure.

****

FOOTNOTES

– It is interesting to note that Fáilte Ireland, the State tourism authority, has dispatched its business tourism team, as well as some of the State’s leading hoteliers and conference organisers, to London this week to try to win business worth “€58 million to the Irish economy”. It is a very precise target, but there you go.

About 300 UK buyers will meet Irish businesses flogging their services at the agency’s Meet Dublin in London event. Business tourism is said by officials to be worth €760 million to the economy and supports 22,000 jobs. The aim is to get it to €1 billion in six years.

The business tourism drive is part of the agency’s attempts to mitigate the possible effects on general tourism of Brexit, which could have a major impact on the industry. The specific business tourism sector that Fáilte Ireland is going after is known in the trade by the not-so-alluring nickname, Mice (meetings, incentives, conferences and events).

Meanwhile, reports in the UK press this week suggest that British prime minister Theresa May is again the subject of a potential heave by some of her Tory party “colleagues”. According to one report, despite the Brexit extension granted by Brussels, “a hard Brexit is now more likely than ever”.

If that happens, Irish tourism would really be in the soup. The best laid plans of Mice and men (and women)...

****

Dave Lewis, the UK group chief executive of Tesco, took a pay cut last year, according to its annual report. Yes, just the £4.6 million (€5.2 million) for Lewis in 2018, compared to his £5.1 million (€5.8 million) the previous year.

What an extraordinary pay packet, given his strident efforts to cut the wage bill at the supermarket group, including here in this country. Every little helps.

Meanwhile, there is no sign yet of Tesco introducing its new budget store brand, Jack’s, into this market. Tesco’s Irish marketing department must be wetting themselves at the thought of it.

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