264 – Reading the fine print on eco-taxes

Posted on October 31, 2013 by

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Economists agree on one thing: taxes provide ideal incentives/disincentives. If the state wants to change behavior – well, just tax it! We have excise taxes on booze, on tobacco, whatever. There is a broad consensus that taxes would be the way to go if the aim is to slow down anthropogenic climate change. “Eco-taxes” are the rage, and I do not refer to the road rage of truckers about to pay it (though as we shall see, this also plays a role).

Taxes are simple and easy: this on paper – paper is patient, very patient. This morning I discovered the fine print – in France. The newspaper article is in French;[1] I shall summarize it. I have not been able to verify the details – I’ll leave it to the partisan press – but the core message is one worth pondering anyhow.

In 2009, the French government decided to introduce an “eco-tax” on lorries, based on actual road use. Trucks are to be fitted with electronic gadgets identifying the vehicle as it passes under roadside trestles. The information goes into the computer and the computer churn out the bill. Easy and dandy.

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In the modern spirit of “public-private partnership” so dear to economists and principled governance gurus, a private firm installed the infrastructure on 15’000 (km) of roads and undertook to operate the system for 14 years. The agreed price for the investment was 650 million €. It is not clear from the article whether trucks will be charged for the now compulsory transponders (I presume this is the case). The state agreed to reimburse the firm the contracted investment costs (capital and interest), should it ever scrap the tax. Fearing the truckers’ rage, it has postponed the tax.

The tax will yield about 65 million € per month. Out of this amount, the state defrays the installer for capital and running costs with a flat fee of 18 million € per month – 27.6 (%) of the yield – to cover both capital (roughly 4.75 million €) and running costs. Apparently the state bears the risk if the income is less than expected. I do not know who bears the loss from delinquency – presumably the state since legally enforcement is his role.

Once installed, the state pays the monthly fee, irrespective of whether it decides to levy the tax or not (the French government has postponed the introduction, so it is now stuck with it). At the end of the stipulated 14-year period, the firm will have raked in 3,024 million €. After deducting the initial investment, income is 2,474 million €. I have no idea of the level of variable expenses, but this is all electronics, and computers cost pennies a teraflop these days. The technology is akin to that for automatic debiting of highway fees.

When collection costs are over 20% of the tax take – at no risk to the service provider – this is a scam (or the tax is inefficient). Nothing new under the modern sun: there are “VAT Refund Services” creaming off 20% of the refund for getting the VAT money back from the state and refunding the creditor’s CC three months later. No business risk is involved. Such takes would make tax farmers on the French Ancien Regime envious (contrary to clever businessmen, likely to obtain the “Business-of-the-Year Award,” they were all beheaded during the French Revolution).

I do not know whether eco-taxes will push back climate change. I know, however, that lots of loose change will line the pockets of the private sector. Time and again we hear about its superior “efficiency” of the private sector. I’m not sure. A mighty river of taxes will flow into private sector profits, replacing the distributed irrigation of the wasteful public service. The name may be different, but the high-jacking of public funds to private gain remains undiminished.


[1]           http://bit.ly/16MMcPX

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