Fabian Demicoli

Giving eco-taxes a bad name

Government
euphemistically calls it ‘eco contribution,’ but Karl Schembri says it is a
blanket tax that has little to do with environmentally friendly consumption

It had to be announced after the Trade Fair. When else could the Prime
Minister announce such wide-ranging taxes to be imposed on almost all kinds of
home appliances, telephones, televisions, batteries, tyres, cans, bottles and
toiletries?


By the end of August reality will hit us hard; Prime Minister
Lawrence Gonzi is keen on getting this ‘Eco-Contribution Act’ passed through
Parliament as soon as possible. Far from limiting itself to encourage consumers
to buy environmentally friendly products with recyclable packaging, the new law
has an 11-page long schedule in fine print, giving a whole list of products that
will be taxed from next month, over and above existing taxes. And the really bad
news is that for a great number of the products listed in that schedule there is
no alternative at all, eco-friendly or otherwise.
Take washing machines and
cooking appliances for example: all washing machines, dishwashers, microwave
ovens, gas ovens and electrical ovens will cost Lm10 more thanks to this
‘eco-contribution.’ No discrimination in favour of efficient, greener technology
here – just a blanket tax of Lm10 on all washing and cooking appliances.
The
same with fridges, freezers and air conditioners. All cooling and refrigerating
equipment will be taxed Lm12 more, irrespective of their energy efficiency.
Televisions and monitors will be taxed between Lm5 and Lm15, depending on their
size, while all kinds of mobile phones, land phones, and any other
telecommunications equipment will be carry an additional tax of Lm2.50. Car
tyres will be taxed an additional Lm2 while all toiletries and cosmetics,
irrespective of their packaging, will be taxed at 5c. Just in case you thought
that was a long list, the Prime Minister also informed us this was just the
first phase in a series of goods to be taxed in the name of the
environment.
That is rich coming from the party that attacked the European
Greens for being pro-eco taxes on tourism. Tonio Borg was the author of the
misplaced criticism as Alternattiva Demokratika has made it clear that it was
not pushing for taxes on tourism but shifting taxation from labour to
pollution.
“It is ironic that government is introducing eco-taxes so soon
after the scaremongering made by the Nationalist Party in the EP election
campaign mentioning eco-taxes as a reason why not to vote Green,” AD Chairperson
Harry Vassallo says.

Lacking legitimacy
It is immediately clear that
the way the law is being introduced lacks legitimacy in the eyes of the already
heavily burdened taxpayer. Even the political party most enthusiastic about
environmental taxes is attacking the government about the way it is imposing
this blanket tax over and above existing tax burdens.
“Eco-taxes were
mentioned in the 2004 budget and our comment at the time still holds true: we
welcome the introduction of eco-taxes, but not as an excuse for an increase in
taxation,” Vassallo says.
“Greens have advocated a shift of taxation from
taxes on labour to taxes on consumption; that is not an increase but a shift to
encourage employment. The term eco-tax should also imply a strict hypothecation
of taxes whereby the revenue collected is strictly dedicated to the targeted
environmental issue and is to be reduced or eliminated once the matter is
brought under control through a wider compliance.”
The idea of eco-taxation
is to use fiscal measures to encourage customers to buy environmentally friendly
products or those which have recyclable packaging and will be recycled. Eco-tax
schemes vary from country to country, but the principle usually adopted is that
the more environmentally unfriendly the package, the higher the tax to be paid.

Green tax reforms imply not only the introduction of particular ‘eco-taxes,’
but also the removal of other taxes that have damaging effects on the
environment. Also, eco-taxes are best compensated through the reduction of
existing distortionary taxes such as income and labour taxes.
But this
government is turning out to be a champion at making what could be just and
equitable taxes instantly unpopular. Such as was the case with VAT. And
means-testing of health care is on the way, just in case you
forgot.

Untimely and unplanned
If we had to put the economy aside for
a moment, what is most striking about this heavy-handed tax hike in the name of
the environment is the government’s hasty, last-minute approach to it all.
It
reflects bad planning, political aloofness and crass incompetence. Just imagine
if this government (make no mistake, it’s been in power since 1987) had to
consistently follow up its early sporadic, unpretentious yet successful
campaigns in the nineties: Xummiemu and popular educational campaigns on
pollution, collection of used batteries, waste separation. By now, a decade
since those campaigns were launched, and abandoned, environmentally-friendly
patterns of consumption would have become second nature to a great part of
society, at almost no cost at all. Instead, Xummiemu is dead and decaying at
Maghtab and the infamous waste separation exercise was found to be a farce:
people were separating their waste only to get it mixed again at the Maghtab
rubbish dump.
All the stakeholders involved are slamming the government for
its hasty, untimely plans. Sources at Federation of Industry say the government
expected their commitment on the new taxes before even showing them the proposed
Bill; GRTU weren’t even given a copy; environmental NGOs and consumer
associations weren’t even consulted.
As if to prove that it was a
panic-driven decision, the press conference itself that was meant to announce
the upcoming taxes turned out to be somewhat of a mess. It was scheduled to take
place at the environment ministry last Tuesday at 9.30am, to be addressed by
Environment Minister George Pullicino and Parliamentary Secretary for Finance
Tonio Fenech.
At the eleventh hour, some bright mind at the Prime Minister’s
office (or was it at l-Istamperija) must have realised the national importance
of the Bill, and also Gonzi’s essential input in his dual role as finance and
Prime Minister. At 1.20am last Tuesday, someone from the Department of
Information was instructed to inform the press by e-mail that the press
conference would be staged in Castille, half-an-hour earlier, to be addressed by
the premier.

Resistance to new taxes
On the previous day, GRTU and FOI
had pre-empted Gonzi by warning him they were against any new taxes,
particularly at this dire economic moment.
“There is no way the government
will get our approval on this one,” GRTU Director General Vince Farrugia said.
“We have no problem discussing reforms to the fiscal structure which would be
lenient on environmentally friendly products and harder on the environmentally
damaging, but we won’t be rushed into anything that would increase burdens on
our economy.”
FOI was equally critical: “The federation has clearly stated to
the government that …[it] cannot agree to the implementation of any form of
additional tax. We strongly believe that taxation in Malta is too high […] The
Federation firmly believes that at no point did it give its official reactions
to, or issue any comments on, the proposed scheme.”
That was enough to
neutralise Gonzi’s attempts, on the following day, to rope in the FOI and GRTU
into the process of imposing these new taxes. The Prime Minister said the
government had consulted them and had heeded their advice to set up a Commission
that would assess the introduction of a system for collecting products for
recycling. The GRTU had already said it would not participate in any
smokescreens. FOI sources say Gonzi’s reference to the federation, trying to
imply its consent, was gratuitous and premature.
While it is crystal clear on
which products have to be taxed and by how much, the Bill stops short of stating
how the government intends to collect electrical and electronic waste, and what
incentives will be offered to get people to dispose of their goods at bring-in
sites. Importers and producers who take part in waste collection schemes would
be granted a reduction in the ‘eco-contribution’ they would have to make on the
products brought in to help in waste separation, but even here the government’s
plans are utterly vague and unconvincing. Also, while taxing consumers heavily,
the Bill does not tackle industrial pollution, nor does it introduce any water
and air pollution taxes.
With the FOI’s and GRTU’s express disapproval, it is
difficult to imagine what such a Commission that is already labelled as a
smokescreen can come up with.

Financing Wasteserv
Even more worrying
is the Prime Minister’s declaration that the revenue made from these new taxes
(Lm4 million annually, according to Gonzi) will go to finance Wasteserv.
Now
this is becoming a typical ploy by the Nationalist government: first it sets up
publicly-funded companies, agencies and authorities, and then it invents new
taxes (call them fees, contributions, whatever) to finance them. It is becoming
an exasperating exercise in imposing new taxes mid-year, between one budget and
another.
Wasteserv is not equal to environment. Wasteserv is just another
publicly-funded company that lacks civil service scrutiny and transparency.
There is nothing which guarantees efficient environmental spending. The Lm40,000
spent on the Environmental Impact Assessment for the landfills in Qrendi that
will never materialise is a case in point. Coupled with incompetent ministerial
interference, Wasteserv’s failure so far to meet waste management strategy
deadlines mean that it is in no position to impose any taxes before it gives
clear indications it is there to deliver.

Dwindling purchasing
power
Vince Farrugia tends to be dramatic in his resistance, but his point
about the sector to be worst hit by these taxes is factual. It is a classless
sector made of couples who are setting up house, who will have to pay additional
taxes on virtually every household appliance they buy, and the poor will pay the
same taxes. That is why Farrugia is calling it an “anti-social tax.”
Even
worse, the taxes will come at a time when the economy is slumbering and VAT has
just been increased from 15 to 18 per cent.
Published on the same day of
Gonzi’s announcement, the GRTU Trade Fair Survey showed that 58 per cent of
trade fair exhibitors interviewed reported a fall in sales turnover when
compared to last year. Of these, 52 per cent claimed that they had a drop of
over 20 per cent in their sales, while only 14 per cent experienced sales
improvement over last year’s. Fifty-seven per cent said they did worse than
expected.
“We’re inundated with taxes that are supposed to go for the
environment, this is not the time to impose new taxes,” Farrugia said. “This has
nothing to do with packaging and the government just wants to add to the
existing tax burdens, over and above VAT. If the government was really
interested in collecting environmental contributions, then it should modernise
existing taxes and remove taxes on those products that are environmentally
friendly.”
A key element of any form of environmental taxation is fiscal
neutrality, which means that the overall tax burden is not increased. With the
increased pressure to keep taxes low, any Green tax that is introduced solely as
a revenue raiser is inevitably bound to be regarded as unjust by the people, and
this threatens the credibility of any true Green taxes.
It is not only
business interest groups who are ringing the alarm about the government’s
untimely tax increases. Economics Professor Edward Scicluna warns that the new
taxes will inevitably lead not only to less spending by consumers but it also
reduces the overall economic activity, despite Gonzi’s reassurances that the
taxes “would only have a minimal effect of 0.84 of a percentage point on the
Retail Price Index.”
“0.84 per cent on the Retail Price Index is a lot,” says
Prof. Scicluna, “not so much because it increases inflation, as many people
wrongly think, but because increased taxes actually lead to deflation.
“The
average wage earner’s consumption expenditure is going to be hit by about just
under one per cent. The negative multiplier effect of the cut in one’s income is
definitely deflationary.
“It reduces economic activity. Private consumer
expenditure, which is a major component of GDP, is reduced by a multiple of that
percentage point. Unless of course it is not an income compensated price change,
where the proceeds (that is revenue) are given all back to the
taxpayers.
“These taxes definitely come at the wrong time. It’s very bad to
introduce them at this point in time when no businessman or consumer affords to
hear there will be more taxes imposed.
“It would be an ideal situation for a
civilised and industrialised country to have eco-taxes, in order to discourage
polluters. If the government was only interested in promoting eco-friendly
consumption then it would incentivise consumers to buy environmentally friendly
products and dissuade them from buying the ‘bad’ products. This could be done by
an appropriate change in the relative price ratios, keeping the overall price
index unaffected.”
The Alternattiva chairman says eco-taxation on packaging
could have been neutral had the government insisted with the EU on existing
bottles collection schemes.
“It is a matter of regret that the government did
not insist sufficiently to sustain the use of returnable bottles during
negotiations with the EU on the Packaging Directive,” Vassallo said. “If
distributors were obliged to collect and dispose of packaging, the sustained use
of returnable bottles would be assured and the importers of non-returnable
packaging would have to deal directly with the waste they create. A return fee
would have been tax neutral and would not be considered a burden on consumers
who have an enviable record of returning glass bottles.”

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