LJ 2011-03-03 12:06:00
What is the function of fuel duty?
The function of tax has been suggested to be to achieve one or more of the following aims:
1. Raise revenue
2. Reprice goods and services considered to be incorrectly priced by the market
3. Redistribute income and wealth
Fuel duty does not correctly achieve any of those, at least not fairly.
#1 could be argued to be the case, but raising revenue through taxation ought to be achieved via progressive mechanisms. Fuel duty is regressive, and therefore not a justifiable way to generate tax revenues.
#3 is right out, because of the aforementioned regressive nature of the thing.
Which leaves #2 – repricing goods and services that the market does not correctly price. This is kind of where the point is. In the way that products such as tobacco and alcohol are taxed in order to make them less accessible and to pay for health services further down the line, fuel is taxed in order to permit investment in greener energies, in infrastructure, and as a means of dissuading people from driving.
But the difference between rural and urban areas blows that argument apart. The cost of infrastructure development is hugely different, the environmental damage is different, and the mileage people do is different. In a suburban setting, the price you’d have to set petrol at to discourage short journeys that could be taken via public transport would be crippling in a rural setting where average mileage is so much higher.
Do I know what the right answer is? Of course not, that’s not what I do.
But as it stands, existing fuel duty does not achieve any of the objectives that would justify its existence.