Photo by Bryn Parish on Unsplash

New Zealand is a signatory to the Paris Agreement and the United Nations Sustainable Development Goals (SDGs). In its first Voluntary National Review, the Government recognised the Sustainable Development Goals as an opportunity ‘to get serious about delivering an integrated and balanced social, economic and environmental agenda’.

The Tax Working Group embraced the circular economy model. The Group’s report indicated how the tax system could radically contribute to a shift in the way the New Zealand economy is constituted and functions.

The wasteful traditional linear economic model uses raw materials to make a product, and any waste, such as packaging, is thrown away and the product itself is ultimately discarded. In contrast, in a circular economy resources are kept in use for as long as possible, maximum value is extracted from them while they are in use; they are then recovered to regenerate products and materials at the end of use.

Agriculture- and transport-related emissions

Despite its successful promotion of a ‘Clean Green’ image, New Zealand faces significant environmental issues, often arising from its intensive agriculture practices.

Agriculture is a disproportionately important sector of New Zealand’s export-oriented economy. However, the agricultural sector, in particular beef and dairy industries, is a major contributor to greenhouse gases, and has resisted government intervention.

For example, a 2003 proposal for a levy on livestock to fund research into methane reduction was dropped due to farmers’ protests. Despite its contribution to greenhouse gas emissions, agriculture has so far been excluded from the New Zealand Emissions Trading Scheme, which currently taxes emissions from all sectors except methane and nitrous oxide from agriculture. The government has announced its intention to put a price on agricultural emissions from 2025 but details are yet to be negotiated.

New Zealand’s performance has also been sluggish in reducing transport-related greenhouse gas emissions, in spite of its high production of electricity from renewable sources.

In 2017, 82 per cent of New Zealand’s electricity was generated from renewables, notably hydropower and wind. (In comparison, only 14 per cent of Australia’s electricity comes from renewables.) According to the Interim Climate Change Committee, electricity generation is responsible for just 5 per cent of the country’s greenhouse gas emissions, whereas fossil fuels used in transport and process heat account for over 30 per cent.

This advantage and opportunity ought to put New Zealand in a leading position to switch its vehicle fleet to predominantly electric vehicles. However, so far, government actions in this regard have been negligible compared to some other jurisdictions, notably Norway. Electric vehicle uptake has been commensurately low.

Green tax proposals for a circular economy

New Zealand has generally failed to leverage its providential advantages through green taxes and subsidies. The Tax Working Group’s consideration of green taxes in the context of the circular economy model is, therefore, relevant and timely. The Group recognised that taxes may ‘change behaviour and transitions towards a more regenerative, circular economy’.

So-called ‘green taxes’ typically seek to change behaviour and correct externalities but leave the linear economic structure fundamentally intact. In New Zealand, existing green taxes include levies on solid waste, waste disposal and landfill, but the principal green measure is the Emissions Trading System. According to the Organisation for Economic Co-operation and Development (OECD), the proportion of the country’s green tax yield relative to other revenues is among the lowest in the OECD and is declining.

What are the differences between existing green tax measures and proposed taxes for a circular economy? While some principles and strategies are common to both, new green taxes aim to contribute to a radical restructure of the economy in which the environment is not considered to be an externality.

The key features of a tax system for a circular economy would be:

  • recalibration of existing environmental taxes to incorporate real prices for externalities;
  • incentivised recycling (cradle to cradle) in fundamental ways;
  • shifting from labour to resource-use taxes;
  • greater use of merit and demerit concepts in nudging consumers towards desired behaviours;
  • comprehensive taxation of land to promote optimal use.

The Tax Working group recommended the following reforms to improve green taxes in New Zealand’s tax system:

  • in the short-term, review negative externalities and remove perverse concessions, such as those for extractive industries;
  • in the medium-term, recycle revenues from more extensive environmental tax into environmental protection and remediation;
  • in the long-term, extend the tax base to support a circular economy.

Shortcomings of the recommendations

Despite its espousal of the circular economy model in principle, the Tax Working Group’s short- and medium-term recommendations would do little more than correct New Zealand’s historical neglect of environmental taxes. Its long-term vision for environmental taxes appears promising, but it is increasingly obvious that radical steps need to be taken now, not decades into the future.

While the Tax Working Group recommends making the Emissions Trading Scheme more ‘tax-like’, surely it would be preferable to go to the root of the problem and institute a comprehensive carbon tax? Furthermore, while the Group spent considerable time and effort crafting a capital gains tax proposal it hoped might be political plausible, the environmental tax proposals appear to take little account of the likely opposition they face from many sectors in New Zealand.

Radical steps needed, but will they eventuate?

Tax reviews are in an invidious position. They typically comprise representatives of agonistic, if not antagonistic, groups in society; they are inundated with disparate and incompatible submissions; they are shackled by their Terms of Reference; and yet they are expected to make politically plausible recommendations. The Tax Working Group is no different. Once the implications of tax reform for a circular economy are better understood, debate is likely to become more heated. The simple recommendation that agriculture should be included in a reformed Emissions Trading Scheme belies the power of the farming lobby in New Zealand.

The embrace by the Tax Working Group of the circular economy approach is courageous and far sighted. New Zealand must act to promote greenhouse gas reduction goals and United Nations Sustainable Development Goals, and to shift the focus of the country’s economy. However, we are skeptical on whether the radical tax changes needed to achieve this will eventuate in the coming decade.


Editorial note: This post is part of a special series to mark the anniversary of the release of the final report of New Zealand’s Tax Working Group and to assess its findings. The final report, Future of Tax, was released on 21 February 2019. The Group, chaired by former New Zealand Finance Minister Michael Cullen, was established by the Government of New Zealand in 2017 to consider the future of the New Zealand tax system. It was the latest major tax review after reviews in 2001 and 2010. Discussion papers and submissions to the Working Group are available at the website:


Further reading

Barrett, J & Makale, K 2019, ‘The environment is not an externality: The circular economy and the Tax Working Group’, Journal of Australian Taxation, vol. 21, no. 2, pp. 34-49.


New Zealand’s Tax Working Group series

How NZ Tax Working Group Recommendations Differs From Previous Reviews? The Influence of the Living Standards Framework and Māori Principles, by Alison Pavlovich.

Māori Perspectives in the New Zealand Tax Working Group Report: Tikanga or Tokenistic Gestures? By Matthew Scobie and Tyron Love.

The Tax Working Group and Capital Gains Tax in New Zealand — A Missed Opportunity?, by Andrew Maples and Sue Yong.


This article has 2 comments

  1. Thank you for writing and sharing this informative article. New Zealand must act to promote greenhouse gas reduction goals and United Nations Sustainable Development Goals. You are apparently very knowledgeable in this area and I have found this to be interesting and intelligent reading. Good job.

  2. Amazing information. In order to tackle climate change, New Zealand needs to take quick and immediate action. There are several different ways the country can do this including promoting their greenhouse gas reduction goals as well as United Nations Sustainable Development Goals (UN SDGs).

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