Economics King’s “Fat Chance” Tax

If “fat tax” is introduced to discourage people from getting fat, what would “flatulence” tax accomplish? And what is FART all about?
Let’s deal with the hot air first. Federated Farmers on July 25 launched nationwide campaign, “Fight Against Ridiculous Taxes” (FART), urging the Government not to implement flatulence tax. The Government did not intend to implement such tax, strictly speaking, but the public were persuaded it did, and there was an outpouring of farmer fury – and rush for membership of Federated Farmers from farmers fed up with growing compliance costs.
The Government released discussion paper and said it was seeking feedback from the agriculture sector on the best way to levy dairy, sheep, beef and deer farmers to fund research into reducing greenhouse gas emissions from agriculture. Comment was sought on the levy mechanism and on the administration, function, structure and governance of research body to manage levy expenditure. And yes, levy is tax.
The agriculture sector accounts for more than half of New Zealand’s total greenhouse gas emissions but the Government’s climate change policy exempted agriculture from “emissions charges” (or carbon tax). In exchange it required the sector to be the main funder of research into reducing these emissions. About $8.4 million year should do the trick.
Farmers won’t be able to avoid the levy, which differentiates it from the “fat tax” advocated in health circles. This would be slapped on goodies deemed to be fat-enhancing, such as pies, Big Macs and the fries that accompany them. The high cost of fattening foods compared with – let’s say – an apple would, supposedly, encourage consumers to opt for the apple.
Business Roundtable executive director Roger Kerr is among those who regard incentives as effective in changing people’s behaviour. He quotes William Easterly, former World Bank economist who says economics is only about incentives: “All the rest is commentary.”
Kerr questions the Clark Government’s understanding of incentives. When it came to office, it was concerned about levels of student debt and responded by making loans interest-free while students studied. Presumably it thought this would not alter incentives to borrow. Student debt mushroomed.
At other times the Government obviously thinks incentives are important. In the name of economic development it is dishing out subsidies to businesses on scale not seen since Muldoon’s era in the belief that favoured firms or industries will be encouraged to increase investment, production and job creation.
Kerr sees the same “double-think” in incentives applied to tax. “Why would it have increased taxes on cigarettes and so-called light spirits if it didn’t think they would discourage smoking and teenage alcohol consumption?”
When it comes to work, saving, investment and risk-taking, by contrast, the Government is largely in denial about the incentive effects of taxation. Ministers say they wouldn’t work any harder themselves if they paid less tax and Finance Minister Michael Cullen has said there is no evidence the level of government spending and taxation affects economic growth.
Kerr subjects these claims to common sense test. If wages are taxed at 100 percent, how many people would work? And if 100 percent tax rate put an end to most formal work, isn’t it likely that tax rate of, say, 70 percent or 50 percent would have some effect?
The carbon tax, an expression of the Government’s fervent belief in the idea of taxing fossil fuels in the interests of reducing global warming, is already on the books and the levy for researching ruminant flatulence is expected to be on the books in time to collect farmers’ money by mid-2004. The fate of the fat tax is open to conjecture.
Asked in Parliament few weeks ago if she would rule out proposing “differential food tax”, Health Minister Annette King said: “Yes. There is not even fat chance that this will happen.”
The Ministry of Health nevertheless was examining submissions received in response to discussion paper, several of them said the Government should impose fat tax.
Fat taxes are being imposed in the United States and are advocated in Britain and the public cost of diabetes, just one serious health problem that can result from childhood obesity, is predicted to cost New Zealand taxpayers more than $1 billion year by 2021. It’s hard to imagine we will hold out for long. M

Bob Edlin is Management’s regular economics writer.

Visited 4 times, 1 visit(s) today

New NZ CEO and COO at FNZ

Global wealth management platform, FNZ, has appointed Jeremy Graham as Chief Executive Officer of New Zealand, and Aroha Steele as the country’s Chief Operating Officer.  The company says in a

Read More »
Close Search Window