New Zealand introduced a comprehensive GST in 1986.
Value-added taxes elsewhere were riddled with politically-driven exemptions. Once one exception is allowed, it is harder to refuse the next one.
Sir Roger Douglas gave us the world’s best consumption tax, without exemptions. Even visiting your GP draws GST.
Equity issues are handled through direct subsidies to lower income households and Community Services Card discounts.
Four decades later, our consumption tax still tops the Tax Foundation’s international rankings.
We should take a similar approach to congestion charging. Keep it simple.
Last week, the Helen Clark Foundation and the Initiative co-hosted a panel webinar on congestion charging. It was a fun discussion.
Everyone saw the merit of congestion charging schemes.
Kali Mercier, who authored the Helen Clark Foundation’s report on the topic, noted the importance of equity considerations. She also argued for exemptions mirroring those elsewhere, for example for emergency services.
In the webinar’s comments section, people argued for exemptions for travel to hospital. Or for other important travel. But who could decide?
I suggested an alternative.
Arguments about which travel is critical are like arguments about which products should be exempted from GST. There is no obvious answer that does not invite lobbying for other exemptions.
The simpler solution would, like GST, provide no exemptions at all.
My submission to the Inquiry into Congestion Pricing in Auckland suggested using the collected congestion charges to fund a congestion dividend that would be rebated back to road users. The submission has more detail than can fit into a short column here. I discussed it in the webinar as well.
Most simply, charges paid by those driving at peak times would be distributed to all road users who travel in the relevant area regardless of when they travel. Those travelling only at off-peak times would obviously pay no congestion charge but would collect a congestion dividend. Peak-time drivers would still pay a net charge, overall.
Emergency services that travel at all times of the day could easily wind up being net beneficiaries – without having to set any exemptions at all.
Households with a Community Services Card could receive a boosted dividend, with the rest of us receiving a bit less.
Really the best congestion charging proposal is whichever one can earn durable political support.
But the simplicity that comes of avoiding exemptions has a lot of staying power.
Just look at our GST.
- Webinar: Charging Ahead: Tackling Congestion on our Roads, Helen Clark Foundation, 21 November 2024
- Submission: Inquiry into Congestion Pricing in Auckland, Dr Eric Crampton, 19 May 2021