A water tax debate during an election year? Political madness! Well actually they're not discussing the real problem; Talking bottled export tax misses the point - let's talk charges, allocations and efficencies

By Alex Tarrant

One would think that springing support for a capital gains tax or raising the superannuation age would sit equal top of the list for the most bold, courageous policies announced during recent New Zealand election years.

But a contender to trump them both started to seep through in Parliament this week: Water pricing.

At the moment, the debate is a mere trickle, focussed squarely on water bottled for export. Opposition parties argue we should either ban this, or at least tax those doing so for the privilege.

The first part of the call – ban exports of bottled water – is not actually surprising at all in an election year. You can see crystal-clear its bed of a heart-tugging, can’t-believe-that’s-happening, nationalistic policy hallmarks.

It’s the second part – taxes or charges – that could become a torrent.

Don’t get me wrong – it would be wonderful to have a full-blown debate about water pricing and allocation in an election year. It would flush out those prepared to make bold decisions from those who might suggest waiting 20 years before doing anything.

But a full-on debate is not going to happen. The history of disagreement on the issue of charges and taxes for water use is deeper than Lake Hauroko.

Read pages 68-71 of the Land and Water Forum’s third report. It might sound like a bit of a bore, but if the Forum gave up trying to find consensus among its members, imagine how hard it would be for a political party to get a good ground swell of support from the electorate.

Wading into the Land and Water Forum’s debate:

If however there was a fully allocated catchment but for some reason a transfer system is not operating in an effective manner then a charge on water use (or the right to use water) could improve the overall efficiency of water use in the catchment. This is because in some circumstances a charge might provide an incentive for those with rights to water to use that water efficiently, or to free it up for others to use.

Where water is not fully allocated, the amount of water used could be reduced if a charge was applied. A charge in this case can be argued to work against efficiency objectives. That said, when a catchment is approaching full allocation, charging could be useful to encourage technical efficiency in water use to maintain headroom for development.

And

A minority of members presented the view that resource taxes are more efficient than other forms of tax. They suggested that raising taxation revenue through traditional avenues such as income or company taxes is potentially less efficient than a resource tax, and emphasised that one of the principles associated with taxation is, or should be, to raise whatever revenues are required in a way that imposes as few costs on the economy as possible.

They think that the key to delivering on this objective is a fiscally neutral approach, under which the collection of resource rents for water would enable a corresponding reduction of income taxes. Proponents argue that a shift in the balance of revenues from income taxes toward resource rent taxes would improve the efficiency of the overall economy and release a growth dividend.

Others note that capital value increases due to the availability and use of water are already taxed through higher property rates. They note the economic benefits from the productive use of water (see paragraph 297 above) and suggest that there is a range of investments that have been made in water-related infrastructure in a variety of sectors that would be adversely affected by such a tax.

Imagine how tough it would be to get the ideas and concepts of allocations, efficiency incentives, resource taxes and abstractive versus non-abstractive use across in simple, election-year language. And that’s on top of steering clear of the ownership debate. If we start talking ownership during an election year then that’s a whole different branch taking us through political white water (btw we need to have that talk).

Perhaps not the Greens, but Labour (politically) needs to be careful on taking the discussion further downstream and outside its current narrow parameters. Andrew Little is making a good effort at taking on John Key’s ‘do nothing financially bold’ stance (no tax changes, no super rise in 20 years’ time…), so won’t want anything to ruin this.

To be fair, the Opposition should be commended for re-opening the water pricing gates during an election year.

But I’m going to hold back on giving it. Move on from the bottled-export debate and let’s have a full-flowing discussion on tradeable allocations, charges and ownership. Not on some faux-nationalistic wet dream.