Should we use multi-year, moving-average of income to calculate tax & benefit payments?

Income tax rates are based on current/last year’s income. This makes them easy to calculate and implement.

This immediacy of taxes also makes them painful, and makes the tax slab thresholds as artificial barriers to income mobility. An example of this is when we get a raise which pushes us from near the top end of one tax rate bracket, to the bottom end of a higher tax rate bracket. This frequently means that even though the employer is paying us more after the raise, we are actually taking home less money due to a higher tax rate.

Government benefits work similarly. For example, the unemployment benefit / social support payments cut off (or reduce dramatically) when we start working. However, after accounting for taxes and loss of benefits, the take home income from pay is often lower than the unemployment benefits.

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Disincentivising the Indonesian forest fires

We didn’t light the fire…

Just saw a small BBC investigative piece on Indonesian fires. These fires cover the whole of SE Asia in smog and increase health risks for almost a billion people.

Under pressure from neighbouring countries, and International organisations, Indonesia has announced measures to prosecute those who light these fires. That’s the kind of measure you take when you want to send an impression of action, without disturbing the status quo in any meaningful way. Identifying, and prosecuting, the fire creators 1 is hard. Even more so when the local law enforcement earns more in handouts from the forest burners than from their official salary. But at least the western nations will be quiet for a while, right?

Here’s first of two better, much more effective deterrent policies 2:

Any land (plantation or forest) that is burned is disallowed for plantation of any sort for a period of 20/30/40 years from the time of last fire.

The period may be defined by how long it takes a forest to grow to a sustainable state. But that’s not the main purpose. The main purpose is to disincentivise clearing land by burning – both existing plantations and new forest lands – by taking them out of circulation for a really long time.

Also, thanks to advances in drone and satellite technologies, it is much easier to identify parcels of land that were burnt, when they were burnt, and if they are being planted on. All without having to rely on local personnel who may be bought or bullied.

However, this policy requires the Indonesian government to actually want to do something. Anything. At the moment, they don’t. So, here’s another policy idea:

Punitive tariffs on raw and processed produce exports from Indonesian plantations based formulaically on the amount of area under fire, continuously aggregated over the preceding 20/30/40 years.

The tariff should be a large multiple of the difference in cost between clearing land mechanically versus clearing it by burning. This policy, like the first, removes the incentive of burning land, replacing it with an overwhelming, long-lasting cost. And, again like the first policy, the metric of implementation (area of fires) can be measured remotely using satellites without any need for feet on the ground.

If effectively executed, it should provide a strong enough incentive for the Indonesian government to act on the first policy.

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