David Gardner: if not now for a carbon tax, then when?

Martin Sandbu’s opening salvo: is there a long-term case for higher taxes?

By David Gardner

I broadly agree with Krishna Guha but would like to address briefly two points he raises: on intergenerational equity; and the desirability of revenue neutrality were we to introduce a carbon tax.

Given the depth of the fiscal hole we’re in [and sinking], there is going to be an element of inequity, especially towards future generations, implied in the scale of what is required to rebuild and consolidate public finances. Unpalatable, but inevitable.

I don’t really see, therefore, how we are going to insulate fiscal policy from ideology. As we said in an editorial on Monday – Spending choices – to the extent that these decisions are now about choice, very hard choices about taxes and spending, they are inescapably a contest of ideas. The fact that the two main parties in the UK, for example, so frequently prefer to trade in irrelevance does not make that less true.

Which brings me on to the carbon tax. Krishna says:

“I think the odds of creating such a multigenerational and crossparty commitment to a policy regime would be much greater if the regime is net revenue neutral and therefore at least partly insulated from the normal left versus right politics around tax and spending”.

I used strongly to agree with that. But, as I said above, we are definitely not entering an ideology-neutral period. On revenue-neutrality: the last time the idea of a carbon tax appeared to have a fair wind behind it (it came close-ish to becoming EU policy in the early 1990s) an underlying idea was that it would help improve European competitiveness and create jobs by, e.g. using revenue collected to reduce payroll taxes, taxes on jobs.

That revenue neutral approach is still right; but the timing is not.

Were a carbon tax to be introduced, the initial trade-off would have to be its investment in the public good (especially for future generations) of the environment. Once public finances were restored, this stream of green revenue should then be used for reductions in some areas, and increased spending in others.

Finally, given the very large sums we need to raise, and the imperative to address climate change, if not now for a carbon tax, then when?

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