Environmentalists are welcoming a raft of proposed changes to New Zealand's tax system.

The Tax Working Group (TWG)'s long-awaited report, now being reviewed by the Government, included a range of strong recommendations to tackle environmental issues, among them climate change and water pollution and abstraction.

The TWG recommended the Government consider introducing a water tax on all types of water use including hydro-generation, household use and commercial water use, if Māori rights and interests could be addressed.

The water tax could help raise funds for the restoration of waterways.

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Specifically, the TWG suggested the Government develop tools that could estimate diffuse water pollution, along with taxes on agricultural inputs, such as fertiliser, if progress couldn't be made on alternative pricing and regulatory measures.

Fish and Game chief executive Martin Taylor noted the report pointed out that nearly a third of New Zealand's rivers, lakes and streams now failed current swimmable standards.

"Taxes send a market signal to businesses and encourages them to respond by changing their behaviour," Taylor said.

"This would be an effective step to improve water quality and quantity by giving them the incentive to develop a market response to the challenges of water quality and quantity.

He expected the "vast majority" of Kiwis would back the proposed taxes, adding that a recent Colmar Brunton survey showed water pollution was now the single most important issue for Kiwis.

IrrigationNZ however argued a water tax would lead to higher power and food prices, along with higher rates bills to pay for the irrigation of parks and reserves, and a direct water tax on household and business water use.

"While we all want to see cleaner rivers, often the solutions to improving rivers require people to change their existing practices both on farm and to prevent urban wastewater discharges into rivers," the lobby group's chair, Nicky Hyslop, said.

"Just allocating money will not be the most effective solution."

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Hyslop said water use and rainfall levels varied hugely across regions, which could see water consumers in some areas paying higher taxes than others.

"We also have concerns that farmers and growers in many regions may face significant water tax costs in excess of $10,000 a year which will make it more difficult to fund the environmental improvements we all want to see occur to improve waterways."

Elsewhere in the green space, the TWG recommended that all greenhouse gas emissions be priced – something that could involve agriculture being brought into the Emissions Trading Scheme (ETS).

It noted that if all free allocations were removed from the ETS, it could raise $2.1 billion in revenue each year.

"Agriculture should be brought into the ETS immediately and fully," Greenpeace executive director Russel Norman said.

"This would not only shift land-use away from highly polluting intensive livestock farming, it would also raise the revenue needed to mitigate and adapt to climate change and clean up the country's rivers."

Norman supported the TWG's key recommendation of a comprehensive capital gains tax (CGT) that would include agricultural land.

"Not only would a comprehensive capital gains tax improve equity, it will also improve environmental outcomes by removing one of the incentives for agricultural intensification."

Federated Farmers vice-president Andrew Hoggard criticised the proposed CGT, arguing that the TWG had "badly under-estimated" the complexity and compliance costs of what was being proposed, and had over-estimated the returns.