No Ring-Fencing for Proposed Carbon Taxes

National Treasury

The finance minister, Pravin Gordhan, has indicated that national treasury will not revisit its view that carbon taxes should not be ring-fenced.

In a written reply to a question in Parliament, the minister added that decisions on ring-fencing were the preserve of cabinet and Parliament.

“Decisions on earmarking are subject to decisions made by cabinet and ultimately Parliament, when it considers legislation to give effect to any carbon tax”.

The minister pointed out that the clean development mechanism (CDM) was a “separate international instrument” that would expire in 2012.

It is independent of the carbon tax initiative.

The proposed carbon tax would “complement the CDM and create incentives through the price mechanism to further encourage the reduction of greenhouse gas emissions domestically”.

Possible reform of the CDM was currently the subject of international negotiations.

Reference was made to the discussion paper on carbon tax entitled “Reducing Greenhouse Gas Emissions: the Carbon Tax Option” that was released for public comment in December 2010.

In the paper it is clearly stated that earmarking of taxes is not government policy.

According to the minister, the earmarking of taxes often results in the misallocation of public funds.

“Therefore, the carbon tax and the use of the revenues generated from the tax should be delinked”.

He did emphasise, though, that the discussion paper does voice support for the funding of important environmental and social programmes as per the normal budgetary process.

In a separate written reply, the minister revealed that 79 written comments to the discussion paper had been received.

He stressed that the envisaged tax aimed to “incentivise changes in the behaviour of both producers and consumers through the price mechanism and encourage them to shift towards more energy efficient, low carbon alternatives”.

Treasury wants the tax burden to be shared by both producers and consumers.

The discussion paper makes it clear that a carbon tax would be phased in gradually and this would help businesses deal with any competitiveness issues arising from the additional tax burden.

Sabinet Cape Town Office

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