Steineken Tax: Funding Infrastructure in a Tourism-Dependent Economy

Steineken Tax: Funding Infrastructure in a Tourism-Dependent Economy.
Andy Kirkwood.
[www.islandbooth.com/comm/200911-steineken-tax.html].
Contact: [firstName] @ islandbooth.com.

Masthead Steineken Tax: Subsidising the cost of drinking our water — here.

This is a working draft. Published 11 Sept 2020. Updated 24 Nov 2020.

The Steineken Tax concept note was originally presented to the the To Tatou Vai Bill Select Committee; 24 Aug 2020; and further refined and appended to the Te Vai Ora Maori written submission 11 Sept 2020. This page replaces the earlier Facebook Unit, and will be updated as the concept is further developed.

Concept Note: Steineken Tax - 11 Sept 2020

Genesis

In the first of the To Tatou Vai Authority Bill vaka meetings (public consultations) – 28 July 2020 – TTV board member Sam Napa Snr referred to the amount of money spent each year on imports; suggesting that if we pay “$14m for alcohol”, then the public should not object to paying water charges.

The Steineken Tax concept proposes the cost of water infrastructure to be part-funded by duty or tax on discretionary household purchases — alcohol / glass bottles.

Above Steineken Tax: infrastructure funding — redefined. Source Te Vai Ora Maori: Presentation to the To Tatou Vai Authority Bill Select Committee. Aug 2020.

Definitions

Cook Islands Investment Corporation (CIIC): manager of Crown assets including buildings and infrastructure. Reports to MFEM.
Infrastructure Cook Islands (ICI): government department previously responsible for roading, water, and waste management.
Many of these functions are to be progressively transferred to To Tatou Vai (based on the constitution of temporary holding company To Tatou Vai Ltd).
Ministry of Finance and Economic Management (MFEM).
Steineken: Given the dominance of imported brands, if you see a person at a social engagement holding a green bottle, it's a safe bet they‘re drinking either a Steinlager or a Heineken.
Te Mato Vai Project (TMV) project to upgrade Rarotonga‘s ring main and water treatment infrastructure, 2014—.
Te Mato Vai Project Management Unit (PMU): Operated by New Zealand consulting firm GHD.
To Tatou Vai (TTV) the new water authority. Until the To Tatou Vai Authority Bill ascends; listed as holding company To Tatou Vai Ltd.
To Tatou Vai Authority Bill (TTVA Bill) proposed legislation to establish To Tatou Vai as a financially independent / self-funding statutory corporation. User pays proposed funding model.

Rarotonga, Cook Islands: Economic context

All values in New Zealand dollars/NZD.

Gross minimum wage: $8 / hr (1 July 2020).
Value Added Tax (VAT) on goods and services: 15%.
GSF Compulsory Retirement Contributions: 10-3-1% (Covid-19 adjustments).
Tax free threshold: $12,800 (1 July 2020).
Semi-rural, tropical pacific lifestyle.
Water-use includes subsistence home plantations, livestock holdings; also providing supplementary fruit and vegetables to the local market.
Water used for recreation: home pools, non food-crops.
Cook Islands currently loosing 3% GDP/month due to border closures / Covid-19 (since March 2020).
Under the To Tatou Vai Authority Bill – 26(5)(b); the new water authority is not required to service loans for the new Te Mato Vai water infrastructure (treatment waterworks, network).

Public response to the TTVA Bill

A bill to establish the new water authority and make provision for water charges was tabled in Parliment June 2020. See: To Tatou Vai Authority (Water Charges) Bill.

At vaka meetings (July 28–30 2020), the public dismantled the proposed funding model for new water authority: removed periodic charges; participation may no longer be compulsory; use of rainwater no longer at minister’s discretion; etc.
Public and agricultural users have requested 66(c) be removed — this section seeks to assert authority over all water sources: groundwater, desalination plants, etc.
Larger volume commercial water users, e.g. resorts, likely to invest in rainwater harvesting or bores to minimise overheads. Chair made reference to similar with the introduction of net metering for solar: commercial operators had capital to invest, blocking domestic connections.
TTVA Bill select committee report to be tabled in Parliament, Sept 2020.

Annual expenditure

ICI Water Division

Old network, ad-hoc maintenance (inner tube rubber)
Annual appropriation for maintenance and staff $750k (2014).
Funded from the general taxation.
One-off, (new) connection fee, no user charges.

To Tatou Vai

New network
Approx annual costs: $2.8m
Staffing: $1.6m / Operations: $1.2m (ops. presumed to be inclusive of chemical supply $500k)
User pays proposed as cost recovery mechanism

Concept notes

Water infrastructure to be part-funded by duty/tax on discretionary household goods / alcohol / glass bottles. The draft Solid and Hazardous Wastes Bill 2019/20 proposes (importer) advanced disposal fee and return refund.

Geared to tourism-based economy; more tourists (or longer stays) = more alcohol consumed.
Preferred over departure or bed tax: visitors only take up only one bed; but take up many ‘beers’.
Post Covid-19, longer stays predicted (fewer departures), room rate increase cumulative/destination could be perceived as exploitative.
Revenues collected over peak tourism season will fund infrastructure over shoulder season.
Refund on bottle return. Locals could be ‘exempt’ from the tax if they return clean, unbroken bottles to a collection depot. Wastes Bill allows for refund to be less than the advanced disposal fee.
Managed depot returns/refunds would mean that returned bottles will be clean and free of contaminants (e.g. lids, cigarette butts). Reduces likelihood of damage to glass crusher.
Depot refund would encourage active recycling, fewer bottles left on beaches.
Bottle drives an opportunity for community fundraising. Schools could establish community deposit point.
Adding a disposal fee as part of the Steineken Tax, revenue collected could also be allocated to the servicing and maintenance of the ICI glass crusher, and requirement for importers to part fund a returns depot — perhaps only at set times, once a week.
Crushed glass can be reused as construction fill – fine aggregate for concrete pads rather than mining sand from local beaches. Might be possible to use in concrete block casting too (further research required).
(Slight) increase in price of bottled beer would enable local breweries to be more competitive — as they can supply product in kegs, or refill flasks (e.g. Rarotonga Brewery), exempt from tax.

Above Departure Tax / Bed Tax / Steineken (beer) Tax Source IBID.

Bottle / glass volume

ICI estimate: 30 cubic meters of glass per week.
By approximate volume/number of standard-size glass bottles; a tax of 10 cents per bottle would net $200k per year.
Tax revenues could increased by: higher advance disposal fee; adding tax to sugar drinks, tobacco, etc.
Aluminium cans also eligible for depot refund?

Bottles / cubic meter

Bottle dimension/volume: 60 × 220mm
Bottles per cubic meter (approx): 16 × 16 × 5-ish bottles high = 1280 bottles
30/week = 30 × 1280 = 38,400 bottles
@10 cents = $3840
$3840 × 52 weeks = $199,680

Beer(ter) data

The Cook Islands State of the Environment Report 2018 (released in 2020), provides a more accurate source, estimating 2.2 million beer bottles imported annually (data from 2013).

2.2m bottles × 10 cents = $220,000

Above Beer bottle imports 2013. Source Cook Islands State of the Environment Report 2020, SPREP.

Above Benefits of the Steineken Tax. Source TVOM.

Solid and Hazardous Wastes Bill 2019/20

Provisions under the Solid and Hazardous Wastes Bill set out mechanism for importers to be charged an advance disposal fee, return depot, and consumer refund on returns. The same framework could be used to implement the Steineken Tax.

33 Advance disposal fee
(1) A person who imports goods (an importer) must pay the Ministry the prescribed amount set for the item or class of items, to cover the cost of disposal of those goods.
(2) Subsection (1) does not apply in relation to any item or class of items that is exempted from the payment of advance disposal fees under regulations.
(3) Payment of the prescribed fee must be made to the Ministry within 1 month after the date on which the goods are released by Customs, or on any earlier or later prescribed date.
(4) Despite anything in the Price Control Act 1966, an importer of goods may add the amount of the fee on each item imported to the retail price of the goods plus additional Value Added Tax (if applicable).

34 Entitlements to refunds on items returned
A person in possession of any prescribed item on which an advance disposal fee has been paid is entitled to a refund in the prescribed amount, which may be less than the advance disposal fee, when the person gives the item
(a) to the Ministry at a collection depot at a prescribed place; or
(b) to any other person operating a collection depot at a prescribed place, with the authority of the Ministry.
-Solid and Hazardous Wastes Bill 2019/20

Supplementary: Reduction of staffing and operational overheads

In addition to new sources of revenue, To Tatou Vai staff and operational expenditure to be curbed;

No account management Continuing to fund from general taxatoin / no user-pays, no need for meters, meter-reading, accounting systems, debt recovery etc.
Diversion — only collecting clear streamwater reduces or eliminates chemical cost (coagulant polyaluminum chloride), waste disposal and import dependence. $50k per intake to retrofit diversion systems (Mar 2020).
Implementation of remote monitoring and control systems — $7.5k per intake (Mar 2020). Staff will not need to directly access waterworks. Less upkeep required on (unsealed and steep) access roads, vehicle maintenance.
Incentive-based director’s fees — minimal base fees paid, collective bonuses paid for achieving community-led management goals: zero (treatment) waste, reuse of (non-chemical) waste, catchment waterway stabilisation (vetiver grass riparian planting), drought resilience, achieving water standards, publication of geological research, ecosystem restoration, etc.

Above Te Mato Vai: Chemical Cost.
Supply estimated at $500k (calcium hypochlorite + polyaluminum chloride). True cost of chemical water treatment needs to account for fate of water treatment residuals/waste. Source Te Vai Ora Maori: Presentation to the To Tatou Vai Authority Bill Select Committee. Aug 2020.

Diversion: Collect only clear water; or collect muddy water and use chemicals to get the mud- out.

Above Diversion: The new Te Mato Vai System proposes to use a coagulation chemical (PACl) to treat raw water during high-turbidity events (rainfall). The alternative is to implement a system to only collect streamwater when it is running clear. In dry conditions, Rarotonga’s raw water is of exceptional clarity; bettering the required standard at the two most productive intakes: Avana and Turangi. Source IBID.

Classification/subjects: Cook Islands, economy, infrastructure funding, Steineken, beer tax, revenue, drinking-water, Te Mato Vai Project.

References