Ideas@TheCentre
Nanny state taxation
The nanny state’s irresistible urge to meddle in peoples’ choices, combined with government’s voracious appetite for revenue, is producing a new class of highly targeted behavioural taxes. France recently announced a new tax on sugary soft drinks (which has the typically French twist of harming mostly non-French companies). Meanwhile, Denmark has introduced a new tax on the saturated fat content of food (the ‘fat tax’).
Australia has its own examples. The Labor government introduced the ‘alcopops’ tax in 2009 and imposed a 25% increase in the excise on cigarettes last year. Both of these actions built on the existing excise system in the traditional domain of ‘sin taxes,’ but their motive was the same as the more recent and less traditional French and Danish taxes. Our government is also toying with the idea of using the tax system to jack up the price of wine so that the minimum price would be considerably above existing prices at the low end.
The recent tax forum in Canberra was held just as Denmark’s fat tax hit the news. There were calls from predictable quarters at the forum for Australia to follow suit. In contrast Gary Banks, Chairman of the Productivity Commission, sounded a strong note of caution against behavioural taxes, saying that much of the detail on how to change behaviour through taxation is unresolved and that behavioural taxes may produce perverse results.
Quite apart from Banks’ technical arguments about the effectiveness of behavioural taxes, there are other reasons for Australia not to follow France and Denmark:
- Such taxes take the state too far into the territory of attempting to influence choices freely made by individuals.
- By penalising the great majority who eat and drink in moderation, such taxes use a sledge hammer to crack a nut.
- They make the tax system more complex and more expensive to comply with – the Henry tax review rightly emphasised the need for simplification and broader tax bases.
- The unstated motive is often revenue-raising, but if more revenue is needed it should be raised more efficiently.
When new or increased behavioural taxes are announced, governments invariably say that the increase in revenue is incidental to the main motive. The test of their sincerity is whether they pocket the revenue or hand it back through cuts in other taxes. I have never known the latter to happen. I do not want to see Australian governments go further down the road of nanny-state taxation, but if they do then they should commit themselves to equivalent cuts in other taxes.
Robert Carling is a Senior Fellow with The Centre for Independent Studies.
