Tax is such a dirty word. And indeed, the way Australia’s tax system is structured supports our very dirty and unsustainable energy system. 

But with a few sensible, overdue changes to our creaking tax system, Australia could drive a shift to a cleaner, healthier and safer future. 

Importantly, we could do this without burdening businesses and households with higher taxes. We just need different taxes and subsidies, so we share responsibility for tackling climate change and nature protection fairly. 

Share responsibility for tackling climate change

The tax system is a powerful driver of Australia’s economy and individual behaviour because it puts a price on goods and services.

How we tax goods and services is a reflection of a society’s values. Right now, Australia’s tax system does not reflect our social and environmental values.

The Australian Conservation Foundation, backed by advice from experts at ANU’s Tax and Transfer Policy Institute, has proposed reforms to transport and land taxes in our economic recovery agenda  Recover, Rebuild, Renew.

Our existing transport system, for instance, is an unsustainable and unfair mess, not equipped to deal with rapid electrification of transport. As the NSW Treasury’s recent Federal Financial Relations Review Draft Report says, fuel taxes, registration fees and stamp duty charges don’t account for the costs of transport pollution, road building and maintenance.

The Federal Government’s total fuel tax subsidy for highly polluting diesel fuel will cost Australia about $34 billion over the next four years with over 20% going to the coal mining industry – the largest Australian taxpayer subsidy to fossil fuel producers. But it doesn’t contribute in any way to improving our transport system – the second largest source of Australia’s carbon emissions.

ACF has proposed putting a cap on access to this costly fossil fuel subsidy to avoid penalising the struggling tourism sector, small farmers and communities reliant on diesel generation.

The NSW Treasury has recommended distance-based road user charges replace vehicle registration, licencing, stamp duty on insurance to reflect the true cost to society and the environment of traffic congestion, carbon emissions and pollution.

Axing the outdated fuel tax altogether and replacing it with road user charges, removing luxury car and import taxes on electric vehicles and linking business tax write offs to zero or low-emission vehicles would speed the electrification of transport.

The revenue could supply governments with the funds needed to build and maintain an electrified transport system and help state and territory governments meet their zero net emissions by 2050 goals.

Reform tax system to help us tackle big challenges

NSW Treasury is right in saying the bushfire and COVID-19 catastrophes Australia has experienced in the past six months have dramatically highlighted the need to overhaul the Federation and the creaking, unsustainable tax system that underlies it.

But the state Treasury gets it wrong in saying the crises were ‘unforeseeable challenges’.

Fire chiefs, scientists and even the Reserve Bank have warned about the grave consequences of climate change for people, nature and the economy. Even pandemics are not unknown.

NSW’s proposal to use the new National Cabinet to reset the financial relationship between the Commonwealth offers hope for other sensible changes to our outdated tax system.

Take the perverse tax incentive that actively penalises the protection of nature. The cost of buying and clearing land to farm can be claimed as a tax write off because it’s a business input. This lowers the land tax paid by agribusinesses. Yet buying land for conservation is fully taxed. Investing in rehabilitating damaged land for conservation is also denied land tax exemptions. But we know clean water and healthy habitats underpin regional economies even if the governments and markets fail to account for their value.

Encourage people to invest in conservation

ACF has urged governments to rethink the land tax and valuation system to encourage more people to invest in conservation. They also need to look hard at how the tax system matches up with its stated goal of reducing Australia’s agricultural emissions.

The challenges we face are largely foreseeable. But they are also very large and if we are to overcome them, we will need to face up to significant reform.  

Without reform, Australia’s inefficient, unfair and dirty tax system will continue to distort consumer decisions to encourage air, water and land pollution. 

Australia’s species extinction crisis and clear vulnerability to climate change tells us it’s time for major reforms including tax reform to reflect the true value we place on the places we love and meeting our responsibilities to future generations.

Matt Rose is the Economy and Democracy Program Manager at the Australian Conservation Foundation

This piece was published by John Menadue's Pearls & Irritations.

Matt Rose

Economy and Democracy Program Manager