When is a tax a tax?

Dr Oliver Hartwich
Insights Newsletter
18 June, 2021

The Government’s so-called clean-car ‘feebate’ scheme has copped a lot of criticism.

However, the Government at least deserves credit for its creativity. The ingenuity in concealing the nature of the programme demonstrates sheer political brilliance.

Once upon a time, we would have called a government payment to some people a subsidy. And we would have called a compulsory payment to the government a tax.

The feebate scheme contains both these elements. Some people must pay for buying petrol cars, while other people get paid for buying electric vehicles.

Yet, the words ‘tax’ and ‘subsidy’ are carefully avoided.

It is understandable why the Government would not want to talk about subsidies. Subsidies always sound like an undeserved favour.

A rebate, on the other hand, is much more positive. It also makes it a bargain. Or, as a TV news bulletin phrased it, “it’s about putting money into Kiwis’ back pockets”. Who could be against that?

Not calling the tax component of the scheme a tax also makes sense, at least from the Government’s perspective.

The Government had explicitly ruled out a car tax before the election. Indeed, it had ruled out any new taxes.

And so, obviously, the ‘feebate scheme’ could not possibly contain a new tax. Transport Minister Michael Wood repeated this ad nauseam in many interviews this week.

The justification for not calling the fee a tax is genius. According to Wood, no-one will be forced to pay the fee. Simply by opting not to buy a petrol car or by at least buying a very low emissions car, people would not be liable to any payment.

By the same logic, no-one has to pay income tax. By refusing to have any income, no-one has to pay income tax. In that sense, there is no income tax in New Zealand. We are inhabiting a tax haven. We just never thought about it that way.

According to the Government, an even better argument for not calling it a tax is that people get something in return. And it’s true, some people will pay a fee while others will get their electric vehicles financed. Is that not a positive?

Again, it is the same with income tax. Though some of us voluntarily pay it, we will also get something from it: the police, the America’s Cup (well, not anymore) and subsidised Hollywood films.

Imagine your dues to government not as taxes. Just as payments with benefits. Bliss.

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