A culture of taxation

Aug 06, 2019

Sunday Business Post, 4 August 2019
Governments were bothered about plastics pollution long before David Attenborough started to talk about it.  In an attempt to stem their use, Ireland has had a plastic bags tax since 2002.  This has been very successful.  Official figures suggest a decrease in plastic bag usage from an estimated 328 bags per capita to an estimated 14 bags per capita, over a twelve year period.

 In the course of that reduction, some quite bizarre behaviours have emerged.  I know of one lady who gets her daughter, who lives in Johannesburg, to send her South African jute bags so that she can proclaim her individuality in the supermarket while protecting the environment.  But the Irish plastic bags tax has a number of characteristics which are critical to the success of any tax which is designed to change behaviours.

 The first of these characteristics is that the plastic bags tax is avoidable.  You can avoid paying the tax simply by bringing your own bag, or by being willing to stuff your pockets.  Avoidance is simple and it is encouraged.  Secondly, the tax charge is very visible.  Plastic bags which attract the tax are available as a purchase option at the till, and their price is clearly displayed.  It is added as a separate item to the shopping total and is shown as a separate item on receipts.

 The third characteristic is perhaps the most surprising one.  The quantum of the tax need not be very high.  At 22c per bag the total cost of the plastic bags tax in any given supermarket shop (ere you to buy all the bags needed to pack the items) might be no more than 1% of the grocery spend.

 Just because the tax is inconsequential to the taxpayer does not mean that it is insignificant.  When the plastic bags tax was first introduced, it was estimated that if it did not change consumer behaviour, it would take in approximately the same amount as Inheritance tax.  It never did bring in that much, nor anything like it.  The total yield currently is around €7 million per annum. 

 In fact, the true mark of a successful behavioural tax like the plastic bags tax is that it collects very little.  Taxes intended to bring about behavioural pattern change are not succeeding if they collect too much.  For that reason the UK authorities can claim early success for their sugar tax introduced last year.  It has raised less than half the forecast amount so far.  It is possible that the impact of sugar taxes is more attributable to changes in manufacturing and distribution, at least in these early stages, rather than to individual decisions regarding consumption. 

 Sugar taxes have not been universally successful.  The initial impact of the introduction of sugar tax in Mexico some years ago was very encouraging, but Mexicans seem to have reverted back to their old ways.  When sugar tax was introduced in South Africa last year it was met with howls of disapproval which completely eclipsed protests against the general increase in VAT rates which took place at the same time, even though the impact in purely financial terms of the sugar tax was far less.  This may suggest there is another characteristic of taxes which are intended to change behaviour.  They must resonate culturally with people if they are to continue to succeed.  

 What does this tell us about levying taxes on other pollutants?  Carbon taxes are a cause celebre at the moment, but they lack the key attribute of visibility which seems to be crucial to their success.  Furthermore, proposals to broaden carbon taxes may well become the casualties of a lack of cultural acceptance. 

 The backlash over the loss of jobs in recent weeks from the closure of electricity generating stations reliant on fossil fuels is a case in point.  It seems to me that the backlash was particularly acute because of the environmental causes attributed to the closures.  The workers were justifiably outraged, as it is unjust to impose immediate job cuts on environmental grounds alone without proposing alternative viable job options.  Lanesborough is being closed because of problems with its discharges into the river Shannon; Shannonbridge because it is not being permitted to burn peat indefinitely.  I’m all in favour of protecting the planet for our children and grandchildren, but their parents and grandparents must eat too.

 If increases in carbon taxes are to go ahead in the next Budget (and all the signs are that they will) there will have to be a comprehensive information campaign about their virtues if they are not to follow the French precedent.  In that country the gilets jaunes put paid to Macron’s hikes to fuel taxes, admittedly after violent and sometimes tragic protests.

 Behavioural taxes have a lot going for them.  They are visible and are not only readily avoidable but it is also socially acceptable to avoid them.  In fact these taxes are only successful if they take in very little money.  But they must resonate culturally with the taxpayer.  Beware of any new carbon taxes which don’t.


Dr Brian Keegan is Director of Public Affairs at Chartered Accountants Ireland