Wednesday, March 04, 2009

The Text Tax

It has been suggested by the Green Party that a 1c tax on text messages would raise some much needed funds for the public purse, in the current economic crisis. This has been referred to as as “unfair and injust” by Tommy McCabe, director of the Irish Cellular Industry Association (ICIA) - see story here.

How much revenue do we think this would generate? According to the Irish Examiner, a record two billion text messages were sent by Irish mobile phone users in the final three months of last year. Say we assume that this is a steady state level of texting, and that a 1c tax would not deter anyone to send a text. With these assumptions made, then the 1c text tax would produce 8 billion cents in revenue per annum, or an annual sum of 80 million euro.

This is all well and good, but I would like to know more about how this tax would be collected. What I have been able to find is a news story from 2006 which suggests that European Union lawmakers have already considered tax on e-mails and text messages as a way to fund the 25-member bloc in the future. Also, a text message tax was introduced in Sacramento, California last December (see story here). The city sent out letters to telecommunications companies to instruct them to levy the tax on customers' bills.

This is an interesting development in the economics of information. While I don't yet have any fears about negative consequences for the widespread distribution of information, comminication taxes could be undesirable if they prevent useful information exchange. Especially in the so-called Information Economy. On a related note, it was announced yesterday that UCD won SFI strategic research cluster funding of €3.56 million - which will be focused on "data analytics".


Kevin Denny said...

My instinct is that such a tax is a good idea, most texts being pretty frivolous. Well mine are. Why stop at texts,why not emails,tweets, messages on Facebook (which could be substitutes)..
I wonder is the ongoing search for new tax bases (like height a la Mankiw) not just a dodge: we have plenty of tax bases, people just don't want to pay. It might be better, albeit more boring, to expend the intellectual effort at improving our existing taxes ?

Martin Ryan said...

Kevin, I agree that many texts may not be essential for the "information economy" to work.

In terms of improving our existing taxes, the Taxation on Commission isn't due to give its report until September (I think). So for the upcoming mini-budget, maybe a few new tax bases will have to be introduced.

Btw, a story in the Indo reports that GP deputy leader Mary White estimates that a 1c tax on every text message could raise €1.4bn for the Exchequer. Such a tax would do well to raise a tenth of a billion!

Michael Daly said...
This comment has been removed by the author.
Michael Daly said...

Just noticing based on some of the recent tax-type proposals: "text tax", "tall tax", "toilet tax" it seems that the key to a good tax idea is alliteration. I wonder what's next, maybe we could sneak 'tipperary tax' under the radar..

Michael Daly said...

Based on the bizarrely ballpark figures produced for this 'plan' I don't think much intellectual effort was invested! The Greens are better off following a proper market leader in corner-cutting and revenue generation like Michael O'Leary. Instead of extracting money from kids via texts, just make a 'pay-to-pee' charge for school toilets and save some water for the environment in the process. Though the savings might be off-set by a spike in school cleaning bills..

Kevin Denny said...

I think a Tipperary tax is a good idea. You know what they are like.