Monday, October 8, 2007

Rubbish Tax - A load of Rubbish?

Apologies for the predictable tabloid headline

But, a rubbish tax is an interesting dilemma. I often written in favour of taxes for goods which create negative externalities. For example, cigarette tax, obesity tax. But, do these argument apply in the case of rubbish?

Arguments for a tax on Rubbish.

  • Rubbish imposes costs on society such as:
  • There is a shortage of landfill sites.
  • It is expensive to dispose of waste. A tax means people are charged for the external costs that they create.
  • Rubbish incineration also causes environmental costs such as greenhouse gases. Rubbish in landfill sites also causes pollution to rivers and water table.
  • Without a tax there is no incentive for people to reduce the rubbish that they create. This creates a moral hazard. It means people who don't recycle and seek to reduce their waste are given no penalty. Arguably this is unfair on those who do try to reduce their waste.
  • Raises revenue for the government which enables better quality refuse collection or to lower other taxes (although the tax raised is likely to be quiet small.)


Arguments against a Tax on Rubbish.

  • It is expensive and difficult to collect the tax
  • It will encourage people to flytip. This is a nuisance and expensive for the council to deal with.
  • Could encourage poor sanitation as people leave rubbish illegally.
  • Discriminates against big families. - They are more likely to have to pay. But, you could argue that a family of 5 should pay more than an old lady in a household of 1.
  • Unfair. Takes a bigger % of income from poor people. True, but, this is not necessarily a reason to stop the tax, if equality is a real concern other taxes and benefits can be adjusted to compensate from the small increase in inequality.
  • Will cause resentment at another tax. - Not an economic argument but likely to be a practical factor.

Conclusion.

As an economist I agree with the principle of a rubbish tax. It is good that people are charged for the social costs that they create. I think the tax will help reduce excessive garbage. I also feel companies should be taxed for using excessive packaging (but that is another debate)

However, In practice, I think the tax will be difficult to implement. The hassle of collecting taxes and avoiding tipping may equal or outweigh the relatively small gains of the tax. The problem of flytipping is a serious concern.

If a rubbish tax is introduced, I won't complain. But, it would be a 'courageous' politicians who came out strongly in favour of a rubbish tax.


See Yes Minister for a delightful explanation of a ' Courageous' political decision.

"Very courageous minister" - civil servant

"what do you mean "courageous" ? - Minister

" I mean it is electoral suicide, minister" - civil servant

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