Tax reform and climate change
The Productivity Commission has just released a draft report on climate change adaptation for public comment. The report examines economic reform options in two broad categories: adaptations to uncertain future climate trends with benefits only under certain climate change scenarios – to which it gives low priority; and, low-cost, reversible actions that can be taken to prepare for future climate change.
The PC is staffed with economists not climate change scientists, so this report looks at economic resilience rather than carbon dioxide or sea levels. In its area of expertise it is bold and clear: change the tax base to increase flexibility and adaptability. Naturally, it condemns Stamp Duty which traps citizens in their homes and endorses Land Value Tax which promotes mobility and the matching of needs to resources. It says:
“Economic reform can build the adaptive capacity of the community
“Economic reform that addresses market failures, or addresses the unintended consequences of current policies, could improve people’s management of current climate risks. Existing policies may limit the ability of markets to reallocate resources in response to extreme weather events and future climate change. For instance, taxes on property transfers (stamp duties) can inhibit the movement of labour and capital and the efficient use of land, and state and territory insurance taxes and levies can distort the ways in which households and businesses manage the risks they face. Replacing these inefficient taxes with less distortionary taxes, such as broadly based land taxes, would likely enhance economic performance, as well as the community’s ability to respond to a changing climate.”
The PC calls this a ‘no-regret’ reform with economic and social benefits whatever the climate change outcome. In a country of “drought and flooding rains”, tax reform that enhances our hardiness and capacity to change wins whatever one’s opinion on the divisive issue of climate change.