Finance Minister Pravin Gordhan

" 'Existing government spending should be improved'

Finance Minister Pravin Gordhan will table the national budget in parliament next week. Analysts expect some clarity on the funding options of the proposed National Health Insurance (NHI) scheme and about the funding of the improved freeways in Gauteng, should e-tolling plans be scrapped.

The possibility of extra taxes to fund NHI, or an extra fuel levy to pay for Gauteng's roads, have again raised the issue of earmarking some state income for specific purposes.

"Taxpayers like to see where their money is spent. Many taxpayers think the [existing] fuel levy already pays for our roads, which is why there is such a resistance to toll roads," said a spokesperson for the Taxpayers' Foundation of SA.

"[Ringfencing and earmarking tax] is an important issue to raise with the NHI, for example, and whether [extra taxes for the NHI] would remain a dedicated tax."

Since the introduction of the plastic bag levy, which the SA Revenue Service started collecting in 2004, questions about earmarking have often been asked by environmental and recycling groups. The 2003-04 budget stated some of the revenues collected from the levy will be earmarked for recycling.

Requests have also been made to the Treasury that money collected through the proposed carbon tax be ringfenced for environmental projects and not simply go into the perceived big black hole of the fiscus.

Stiaan Klue, CEO of the SA Institute of Tax Practitioners, said if properly implemented, a system of earmarking tax income could lead to a public perception that tax money was better spent as taxpayers would see the return on their tax money as more measurable. "But the general perception of taxpayers is that they do not get enough 'bang for their buck'," Klue said.

"This perception creates a negative attitude towards any new or increased tax, whether ringfenced or not. And before starting a debate on ringfencing certain taxes, existing government spending should be improved to ensure a better return on the investment of tax money."

Charles de Wet, tax partner at PwC, said ringfencing was a great idea to sell a new or increased tax to taxpayers as it made the tax more palatable, but apart from that, it was a pipe dream. "If every cent of tax money has to be allocated for this or that specific purpose, it will increase the cost of tax administration and lead to inefficiencies without really adding value for anyone," he said.

"In reality, we do not have a very good history with the ringfencing of taxes and levies; for example, the regional services council levy, which was supposed to be ringfenced for infrastructure; and the fuel levy, which was supposed to be ring-fenced for roads."

Other examples of ringfenced taxes or levies, as pointed out by Klue, are the Road Accident Fund (RAF) levy, the skills development levy, the fuel levy on the KwaZulu-Natal- Gauteng pipeline, and the Unemployment Insurance Fund levies.

The RAF's finances have been in disarray for years and very little money from the Skills Development Fund has so far been spent.

Ismail Momoniat, deputy director-general in charge of tax and financial sector policy at the Treasury, said a reason for generally not earmarking taxes was that the amount of revenue raised and expenditure needed for a certain function almost never coincided.

"The aim of something like a carbon tax is to change behaviour, not to earn revenue. Also, where do you draw the line? If you say a certain tax should be spent on environmental projects, surely it should also be spent on public transport because it reduces emissions?"

Momoniat said if government aimed to fund its spending priorities adequately, this often required more money than what would have been available from a specific tax.

The Treasury recognised that taxpayers often thought that their money was going into a dark hole. "However, our budget system is among the most transparent in the world, and accountability should be for all revenue, not just earmarked revenue," he said.

"The minister of finance has committed himself to eliminating wastage and improving accountability over all spending.

''But earmarking revenue for certain purposes will not solve the problems with efficiency and accountability," Momoniat said.