Why We Need to put a Price on Water, Not a Tax.

It isn’t a Water Tax, it is a Water Price.

Farmers and their mates in the National Party have been quick to label any charge on water a ‘tax’, and claim it will push up the cost of everything from a glass of water to milk or even beer. They are wrong on all counts; pricing water would not only raise revenue to clean up our waterways, but if managed well would actually be good for our economy. 

Taxes vs Prices

Of course taxes sound worse. Nobody likes a tax, it always sounds as if the government is trying to take something off us that should be ours.

We are used to prices on the other hand. We are used to the idea that we should pay for things that aren’t ours. Once we have paid for those things (by either renting or buying them) we can use them and benefit from them. Nobody wants to be a freeloader, a beneficiary getting something for nothing, or worse, stealing something.

So which is this, a tax or price? Well does the water belong to the farmers? No, it belongs to everyone, especially Maori under the Treaty. So if you are paying for something that doesn’t belong to you, you are paying a price.

This is clearly a water price, not a tax.

Who Pays Wins

There is another reason that makes TOP’s proposals even more clearly a price compared to Labour’s proposal. When resources are scarce, prices are used to allocate who should get them. When resources are plentiful, prices fall to zero.

Labour is suggesting the same charge across the country. TOP is suggesting that the price should reflect demand for water at that time and place. In other words the price would change depending on how scarce the water is. That is what a price is for, to ration scarce resources. Whoever is prepared to pay the highest price gets to use it.

In fact incredibly this already happens in areas with water scarcity. People with water rights sell them to others who need water. Water pricing and trading exists, and private businesses are already benefiting from it instead of the public. This is National’s dirty little secret.

Companies that can use the water in a more profitable way than existing users can then enter the market. This ensures that the scarce resource goes to where it has the highest value, and the economy benefits as a result. They can also afford to pay more for the water they use, so the public purse benefits. Pricing water is a logical way to lift economic growth.

Will Prices Rise?

What happened over the past couple of decades as farmers started using water? Did the price of milk and beer fall? No it didn’t.. What did change was that the value of land owned by farmers with a water consent – it rose by $8,000 per hectare on average.

So what would happen if we priced water? The value of land would fall. Nothing else would change. Not milk prices, not beer prices. National and their farmer mates are just scaremongering. They are trying to protect the value of their land, and their unearned, untaxed capital gain.

In all, proper water pricing would have little in the way of negative impacts, and in fact would lift economic growth and efficiency by ensuring our water goes to the highest value use. Claiming anything else is economically illiterate scaremongering.