Offer taxpayers the carrot... not the stick

WHEN it comes to tackling climate change through new carbon taxes, the Taoiseach is in a tricky position.

He knows that Ireland is performing very poorly in terms of meeting internationally agreed goals for reducing our emissions; last July, a report by the State’s climate change watchdog warned that the country is considerably off course in terms of meeting both its 2020 and 2030 climate change targets.

The Climate Change Advisory Council also warned that Ireland would struggle to meet the Government’s objective of decarbonising the economy by 2050.

The watchdog recommended significant hikes in carbon taxes to address this failure, based on the widespread belief that the only way to change people’s behaviour is to hit them in the wallet. A month earlier, the Climate Action Network said Ireland was the second worst-performing nation in Europe in terms of meeting its obligations – and there were warnings that financial penalties of up to €600million a year from Europe could result.

However, Leo Varadkar is also painfully aware that simply hiking taxes on fuel could result in a massive public backlash. Quite apart from the memory of his own Government’s disastrous handling of water charges – which were also primarily intended as an environmental measure, rather than a revenue-raising one – Mr Varadkar has also recently alluded to the ‘Yellow Vest’ protests in France which threaten to undermine the rule of Emmanuel Macron (and possibly even the rule of law itself). These protests, which have seen ten people killed, began as a revolt against precisely the kinds of new fuel taxes which the Taoiseach is being urged to implement here.

Therefore, Mr Varadkar is intent on finding ways of trying to ensure that higher carbon taxes change behaviour, rather than simply hitting hard-working families with a new tax hike.

Part of that plan is to seek cross-party agreement, in the hope that Fine Gael alone would not be blamed for any agreed increases – though such thinking is at best hopeful, as the buck will have to stop somewhere, and a new tax, however widely supported, will still be seen as having been introduced by the government of the day.

The other part of the plan is to make the changes revenue-neutral – ie, to find a way of giving the money back to taxpayers in another format. That is why, as we report today, Mr Varadkar is floating the idea of handing back carbon tax receipts via increased child benefit payments, with increased tax credits, or simply by sending out a cheque for every household, then hitting the biggest carbon users with substantial increases.

However, the greatest challenge if carbon taxes are to rise is to ensure that the hard-working classes do not – as usual – bear the brunt of this measure. Should someone who commutes to a job but does not have workable public transport options have to pay extra in fuel tax for the privilege, while someone who does not work, and therefore has no fuel costs, gets a cheque in the post? Should people who were heavily encouraged by the Government to buy diesel cars now be hit with penal fuel taxes in consequence?

A key lesson from the water charges fiasco is that, if we are to use the tax system to change behaviour, it should be done positively, through far greater incentives – in this instance, scrappage schemes for diesels, for example, and greater financial assistance for adopting green energy policies at work and at home. In politics, as in life, liberal use of the carrot is usually a far better option than simply resorting, once again, to more stick.