Labour's water tax plan doesn't go far enough: Economists

It might take more than 1c or 2c per 1000 litres to change behaviour, one economist says.

It might take more than 1c or 2c per 1000 litres to change behaviour, one economist says.

Economists say charging commercial consumers for their water use does not go far enough – and households should pay for their share, too.

Agricultural economist Peter Fraser told RNZ that Labour's proposed water tax should be applied to everyone, in the same way as GST.

He said irrigated water accounted for 80 per cent of all water used in New Zealand and farmers should expect to pay for that.

"Irrigation is the biggest user of water in New Zealand bar absolutely nothing," he said.

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"People using 80 cubic metres of water a year - I'm happy to pay my $1.60 for that if Bill English's farmer pays his or her $50,000. I think that's eminently fair. To be fair to Labour, what they've done is open the door on a conversation we need to have as a country."

Labour spokesman David Parker rejected the idea of the tax being levied further. He said domestic users might pay 50c a year for their consumption. "It's a small amount, anyway. It wouldn't be worth the compliance cost."

He said the figures used by farmers objecting to the tax indicated they were talking about operations using huge amounts of water. A farmer paying $50,000 a year, as some had suggested, would have to use as much water as 30,000 people.

Irrigation New Zealand calculated a farm of about 200 hectares could face a $24,000 bill under Labour.

Infometrics forecaster Gareth Kiernan agreed there would be an administrative cost involved in trying to collect small amounts of tax from residential households, if the tax were applied widely.

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But he said it should be possible for the tax to be charged in bulk to councils, which could then apply it via rates. Some councils already charge separate water rates. 

"The central government could charge one big bill that the council could pass on. There are ways of getting around it."

But he said it was questionable whether a tax a 1 or 2c per 1000 lites would be enough of an incentive to change behaviour, as Labour wanted.

At that rate, the tax did not properly reflect the environmental effects of taking water and the downstream effects of that, he said.

It could be that the tax would be better levied at a higher rate in areas where water was scarcer, such as Canterbury, he said. "That Labour policy is a step in the right direction but it needs broader debate."

New Zealand could not afford to think of water as an unlimited resource, he said.

Irrigation NZ said newer data showed irrigation was 62 per cent of water use.

"Comparing human and farm use of water does not make sense – farms occupy a much larger land area and produce something for the water they use – for example a 100 hectare crop of wheat produces around 2 million loaves of bread – enough to feed 10,000 families over a year. If we didn't have irrigation, New Zealanders would not have access to quality local food at an affordable price," said chief executive Andrew Curtis.

 - Stuff

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