4629.0.55.001 - Discussion Paper: Environmental taxes in Australia - Experimental new statistics, 2000-2011  
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 13/12/2012  First Issue
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Contents >> Introduction >> Market–based instruments


Market based instruments are widely used by governments to influence social and economic behaviour with taxation being a typical example. Other types of instruments are subsidies, rebates, qualitative legislation and voluntary agreements (Whitten et al, 2004). Statistics on the environmental aspects of these types of instruments are important to monitor and evaluate the response undertaken by government to mitigate or adapt to the pressure on the environment. Statistics on environmental subsidies, environmental fees and charges are currently being developed in Australia. Appendix 1 outlines the environmental economic transactions between institutional sectors as recommended by SEEA.

Market based instruments are usually applied to influence social and economic objectives, such as home ownership, employment, economic growth and price stability. Both their implementation and control depend on the policy objective of the government and, in combination with voluntary agreements, whether it is applied through revenue collection (i.e. taxes) or expenditures (i.e. subsidies, grants and tax expenditures) of the government (Weil, 2008).

Environmental taxes are sometimes analysed as a mean to price environmental externalities, such as pollution. Implementing environmental taxes can effectively internalise an externality, whilst providing incentives for innovation to reduce the impact on the environment. This is an important factor when seeking new and cleaner solutions in response to the price put on pollution. It also changes the market dynamics for businesses and society in searching out the lowest-cost option.

Environmental taxes, sometimes with other information, can be used to research and analyse a number of issues, including:

  • From a fiscal perspective: to monitor the revenue stemming from environmental taxes compared to other taxation.
  • From a distributive perspective: to monitor the distribution of environmental taxes among tax payers as well as viewing changes over time as taxation policy changes.
  • From an allocation efficiency perspective: to monitor the extent of the internalisation of negative environmental externalities (including whether the tax reflects the price of an environmental attribute) and the polluter-pays-principle.
  • From an incentive perspective: to monitor any impact on pollution levels, resource consumption, other changes in consumption behaviour and the development of new technologies and innovations. This could include the estimation of price elasticity.

By bringing environmental taxes together it is possible to use input-output (I/O) models to investigate impacts in society of new taxes on the environment. Different equilibrium models can also be used to model different scenarios and assess efficiency costs and benefits of environmental policies.

Linking statistics on environmental taxes to other environmental charges, fees and other transfers like subsidies and grants could be used to provide a more holistic view of the incentives to change environmental behaviour.

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