A: When it encourages behaviour that makes the world a better place for us all. In my humble opinion, that is.
Tobacco excise falls into this category – it provides a disincentive to smoking, surely saving many Kiwi lives every year.
Q: When is a tax particularly bad?
A: When it actively discourages behaviour that could make the world a better place for us all.
The Road User Charges (RUC) tax regime on diesel cars falls squarely into this category. Once again, in my humble opinion.
Visit Europe or the UK and rent a car, and the chances are it’ll be a super-economical diesel that goes like crazy while sipping less than 5 litres per 100km. There’s plenty of fun to be had zipping around France or Italy in a Fiat Punto, Citroen C4 or BMW 116 diesel with a six speed manual and a throaty exhaust note.
But all that frugal motoring fun does give rise to one more question.
Q: Why have Kiwis not embraced this super-economical common rail diesel technology in small passenger cars? When we buy a small car, why do we tend to choose a petrol model that burns maybe 8 litres per 100km rather than the equivalently powered turbo diesel that might consume less than 5 litres over the same distance?
A: Owners of diesel powered cars pay RUC by the km at the Post Office counter – and the cost is the same regardless of the efficiency of the vehicle. At today’s pump prices, a diesel hot hatch using 5 litres per 100km will cost you just $75 to drive 1,000km. But add the RUC and the cost increases to $123. The RUC tax is the same regardless of whether you’re driving a 3,500kg truck or a Suzuki Swift DDiS, effectively counteracting the benefits of all that fantastic diesel technology that the rest of the world enjoys. So almost no-one in New Zealand buys small diesel cars.
New Zealand must export a lot of butter, wool and logs to buy a barrel of oil. So why do we have a tax system that actively encourages us to ignore the advances in diesel technology over the last decade which would allow us to collectively burn less imported fuel?
This is an easy fix, Mr Joyce. Petrol powered cars pay excise tax at the pump so drivers of economical cars are rewarded by paying less excise tax. Apply the same logic and charge RUC at the diesel pump rather than at the Post Office counter, so purchasers of super-economical diesel cars can genuinely enjoy the financial rewards of this technology. Hey presto, more Kiwis will buy cars of this ilk saving the country a significant amount of foreign exchange each year. Over the years our nationwide vehicle fleet will become more economical as Kiwis will no longer be disincentivised to choose a more economical model when replacing their existing cars.
Look beyond the three year electoral term, Mr Joyce. Yes there will be a one-off cost in changing the system, but over the longer term this is a no-brainer.