Trevor Sargent
Question:98 Mr. Sargent asked the Minister for Finance if he has assessed the various benefits of hypothecated taxes in view of the successful implementation of the plastic bag tax. [14510/02]
Written Answers. - Tax Yield.
Several arguments have been advanced in favour of hypothecated taxes – that they provide a clearer mechanism for public preference to be brought to the political process than the current method of general fund financing. It has also been suggested as a way of bringing more transparency and direct accountability to the setting of public expenditure priorities. The assumption is therefore that if a tax is earmarked for a certain activity then that particular area will merit more attention and that this will create the perception that the public are getting a more effective economic or social outcome than would be the case under a general allocation mechanism.
Earmarked taxes, however, tend to be an inefficient long-term use of resources. Once established, they tend to determine particular levels and direction of public expenditure and generate spending in particular areas whether it is useful or desirable. The existence of an earmarked tax would tend to generate a minimum level of expenditure. This expenditure tends to generate constituencies which support this form of spending making it more difficult to abolish such taxes or divert the revenue to the general fund of expenditure.
In general I believe the argument favours the current method of the allocation of tax revenues according to the expenditure requirements set by Government. I would not support the view that there should be strong earmarking, where the level of expenditure on the public service is determined by the level of hypothecated tax revenue.
As regards the plastic bag levy, the intention of the levy was to facilitate a change in consumer behaviour and reduce and hopefully eliminate the use of plastic shopping bags in the State thereby reducing the number of plastic bags that end up as litter. The levy was also intended to encourage the use of reusable bags.
The decision to use a 15 cent levy to encourage voluntary compliance with the policy of reducing and eventually removing the plastic shopping bag was considered more appropriate than an outright ban on plastic shopping bags which would be difficult to enforce and might not gain public acceptance.
However, the extent of actual revenue raised was a secondary consideration and in time with the removal of the plastic shopping bag from use in the retail trade, there should be no long-term revenue from this source. I do not think that this is what supporters of hypothecated taxes have in mind.