Earmarked Tax in Public Sector - Essay Example

Earmarked Tax in Public Sector Introduction The term ‘earmarking’ refers to any fund that has been kept in reserve by authorities for a definite purpose. Earmarked taxes can therefore be identified as certain amount of taxes collected by the government which are reserved for undertaking certain activities leading towards the development of the country. In other words, earmarked tax is defined as the practice of allocating revenue collected by the government in the form of various taxes for undertaking specific activities related to a certain area. For instance, earmarking of taxes for protecting the environment is commonly applied in the US, Europe and other western countries. Furthermore, taxes that are collected from fuel consumption and motor vehicles are allocated for the construction of national and state roadways (Anesi, 2003). Furthermore, concerned with the increasing health related issues, World Health Organisation (WHO) has further increased the global tax rate of cigarettes and other tobacco related products to 10% which will ensure an additional revenue generation of 7%. However, the revenue percentage generated can increase in higher income countries compared to lower income countries. However, the members of WHO stated that despite the steep increase in the taxes charged for cigarettes and tobacco products, people are not discouraged in limiting their addiction levels irrespective of the income status of the country (Prakongsai & et. al., 2008). Part 1: Literature Review According to Brett & Keen (2000), earmarking has the possibility of affecting the electoral outcome due to the decisions of the policymakers and representative voters. It has been observed in this regard that the policymakers often tend to use earmarking to motivate the voters’ belief in order to earn considerable amount of votes against the competing party. Hence, it can be suggested that earmarking of taxes should either be fully implemented or abolished, similar to the strategies adopted by the Australian government which assigns the entire amount of gambling taxes towards serving a particular purpose (Brett & Keen, 2000). However, Garrett (2001) argued that earmarking of taxes is effective in changing the behaviour of the citizens in most of the countries causing a deep impact over the socio-economic trend. However, it is worth mentioning that if earmarked taxes are diverted from their projected purposes, it can create certain limitations for the policymakers (Garrett, 2001). Therefore, it can be concluded that earmarked taxes can be effective in changing the behaviour of the citizens towards certain products and practices that tend to affect the health of the people by a large extent. As observed by Mossialos & Dixon (2002), healthcare systems are based on dependable factors that have an access to human, consumable and capital resources. Availing these dependable factors require adequate financial resources for establishment cost, adequately compensating the employees offering healthcare services and incurring expenses for drugs and other consumable medicines. Moreover, these measures are fundamentally adopted by the governmental authorities for generating revenue, and managing them in according to their importance. Since, the costs are increasing gradually and resources are being scarce, policymakers are facing huge challenges in attaining funds. Therefore, it can be suggested that containment of costs and increasing the funding can improve the healthcare services (Mossialos & Dixon, 2002). According to the findings of Kanavos (1999), the total expenditure on healthcare sector incurred by the UK consists of personal medical services which include ambulatory care, medical goods and in-patient care. Furthermore, huge amount of expenditures are related with providing collective healthcare services, programs and health insurance benefits. Moreover, the government is also observed to be incurring huge costs in educating and training health personnel for providing effective services to the citizens (Kanavos, 1999). Thus, it can be stated that people and government are equally concerned with the healthcare services due to which they are investing huge amount of their revenue towards medical insurance provided by both private and public companies. The graph below depicts the spending pattern of the public in the health care sector of the UK. It further depicts the estimated amount of spending for the forthcoming years. (Source: Chantrill, 2012) In the similar context, according to a publication issued by the Treasury Department (2012), governmental authorities are facing considerable amount of limitations from the macroeconomic perspective which further tend to be restricting the abilities of the public departments in funding related to healthcare services. Thus, the increasing healthcare costs can possibly become quite difficult to control in the forthcoming years. Furthermore, it has been observed that demand for healthcare services from the past thirty years are increasing at a rapid rate in comparison to the national income of the world nations which again imposes a certain degree of threat on the proper allocation of resources (Treasury Department, 2012). Thus, it can be stated that the healthcare costs have been increasing at a time when the Gross Domestic Product (GDP) of majority countries have been affected due to the recent financial turmoil. According to Kanavos (1999), UK is often regarded as one of the largest spenders on welfare activities amongst the developing nations. In such circumstances, even though financial resources are not generally apparent, these can be identified through the overall expenditures in proportion to the GDP of the country. Moreover, there are substantial amount of pressure observed on the publicly funded healthcare systems, especially those which are related with other welfare activities and have contributed to the efforts of increasing the GDP of the country by a large extent. Boyle (2011) further supported the argument by stating that healthcare services in England are generally financed by the government who are generating revenues from the general taxes and National Institute of Clinical Excellence (NICE). Based on a similar issue, it was revealed that a mere 13% of the total population of England is covered by the medical insurance schemes. As a result, the government has to incur huge expenditures in providing health related services to the people who sustain on a below average income (Boyle, 2011). Thus, it can be affirmed that due to the high investments in attaining medical insurance schemes, many people from the average income group are not covered by the insurance schemes. Therefore, the government has to spend huge amounts in case of medical requirements for the people who remain uncovered by such benefits. In this regard, Boyle (2011) argued that National Health Services (NHS) was established in the year 1948 which was responsible for providing healthcare services in the UK. However, this organisation has undergone many transitional phases and has adapted various measures to implement the changed processes. Furthermore, the Labour Government elected in 1997 initiated various strategies for restructuring the organisational structure and funding provisions by the government for a period of 13 years. Furthermore, in May 2010, a new Conservative and Liberal Democrat Coalition Government indicate more effective changes to the organisational structure of NHS. At present, NHS is accountable to the Parliament for initiating a wide range of activities related to healthcare services. Furthermore, House of Commons Health Select Committee is the main committee to which NHS is accountable. At times, Public Administration Committee or the Public Accounts Committee addresses certain issues regarding the operational methods of NHS. Every year, the NHS is required to provide a detailed report about the expenditure on Health and Personal Social Services to the members of the Health Select Committee. Simultaneously, the NHS has to support the reports with evidences of the activities undertaken by the organisation in providing healthcare services and promoting awareness programmes. The reports are then sent to the government for further recommendations and solutions to any particular issues for the ultimate development of relevant policies (Boyle, 2011). According to reports published by HM Treasury (2009), most of the funds for providing healthcare services are generated through taxes collected from different sources. However, these taxes are not earmarked for particular purposes. The financial downturn across the world reduced the expected revenue generated through earmarked taxes, majorly because the earnings of the people have been limited. The statistics further reveal that overall government receipts for the year 2008-2009 were £533.8 billion in comparison to the expected revenue of £575 billion. In 2010, the governmental receipts amounted to £514.6 which indicates that it has further limited the funds to be allocated to different sectors. Furthermore, it has been observed that from the overall revenue collected in 2010, £95.6 billion was generated from NICs and £145.6 billion from individual income taxes (HM Treasury, 2009). The remaining amount was collected from other range of taxes, such as Value-Added Tax (VAT), corporation and excise duties. Although the expenditures of 2008-2009 and 2009-2010 increased from £621 billion to £671 billion in relation to social protection, inadequate amount was spent for healthcare services during the same period (HM Treasury, 2010). Studies further revealed that the main source of generating funds for NHS is general taxes which include income tax, corporation tax, VAT and excise duties. Moreover, reports revealed that majority of the portion of general taxes are contributed from the revenue generated through income tax. Therefore, the government decides the tax rate on the income and estimated annual budget. However, these rates are observed to increase or decrease by a minor percentage along with a minimum amount of allowance provided on the individual’s income. The current non-taxable income fixed for the year 2010-2011 was accounted for £ 6,475, corresponding to which, a rate of 20% was applicable to the first £37,400, 40% towards the next £112,600 and 50% for thereafter. VAT rates have been standardised to 17.5% for many years; however, the government decided to reduce the VAT rate by 5% for certain goods such as fuel, anti-tobacco products and power related products. Furthermore, the government have excluded various products from the VAT purview such as food, children’s clothes and educational books (Boyle, 2011). Part 2: Evaluation The above findings and literature indicates that financial downturn acts as one of the key issues obstructing the government to allocate appropriate funds for healthcare services. In other words, due to the financial crisis, annual income of citizens on various nations, especially the western countries have decreased owing to massive job cuts. As a result, the revenue earned from individual income taxes has decreased thereby leaving the government with no further choices than to borrow from the World Bank. Moreover, the increase in costs related with healthcare services have increased substantially at a rapid rate making the tasks of the policymakers more challenging. Furthermore, it has been identified from the reports that the overall expenditure spent in social development consists of limited amount towards developing healthcare sectors. Thus, earmarking of taxes similar to the Australian government can be followed which will ensure the UK government for spending a certain amount of the collected revenue towards the effective deliverance of healthcare services. Furthermore, it has been observed that increasing the taxes for addictive products did not change the consumption pattern of the people, thereby leading them towards health related problems. Therefore, the policymakers should be aware of the not affected consumption pattern and further implement additional measures in discouraging people from consuming addictive products (Boyle, 2011). Although the taxes levied on addictive products are increasing rapidly thereby generating additional revenue for the government, the main source for increasing the revenue collection continues to indicate towards individual income taxes (Boyle, 2011). Thus, the government require implementing strategic decisions in developing the individual income pattern which can certainly contribute to the increment of GDP. It has further been observed that a minimum percentage of the overall population has been invested in medical insurance schemes which attempt to cover up the costs related to healthcare. Consequentially, the pay cuts and job cuts affected majority of the people’s annual income, offering them little opportunity for investing in the medical insurance schemes. It is in this context that medical insurance schemes are provided by both private and public companies which to a certain extent reduces the burden of the government. Moreover, the government with their insurance policies have the possibility of generating funds which can be utilised for developing healthcare and social service sectors. The establishment of medical insurance companies can also help to generate employment opportunities which can further contribute in the overall GDP of the country in the long-run (Boyle, 2011). It has further been analysed from different governmental reports that certain necessary commodities have the leverage from paying VAT which is one of the few types of subsidies provided by the UK government. Moreover, as the revenue generation depends largely upon the general taxes which include excise duties and corporation taxes other than VAT, implementation of VAT should be entitled to all products. However, difference in percentage rate can be levied depending on the nature of the product. For instance, percentage for luxurious products can be fixed at higher rates, whereas for basic amenities, the rate can be lowered. Containment of costs is further necessary for coping with the low revenue generation and increasing healthcare expenditures. However, due to the increase in all factors of production, the costs of medicines have increased substantially, thereby limiting the scope of the government for cost containment. Furthermore, cost effective machines are being implemented in order to reduce the expenditures incurred by the people suffering from various health related problems. Most of these machines are being implemented in private hospitals which provide patients an opportunity to cover up the expenditures from the compensation paid by the insurance companies. In order to implement effective healthcare services, government should take initiatives for procuring cost-effective machines which shall reduce the financial burden on the patients, providing efficient support in terms of free treatments (Boyle, 2011). Studying the historic developments of earmarked taxes in the UK, it can be observed that the Labour Government, elected in the year 1997, restructured the organisational structure for providing enhanced services to the general public which have limited options for better treatment due to financial inability. In this regard, the governmental authorities identified certain policies that are required for dealing with major diseases which included cancer, heart related disease, actions for minimising the percentage of smoking habits among others. Thus, the government decided to implement policies which are mandatory for public health departments along with a wide range of targets. Furthermore, in the year 1999 the Labour Government communicated the desired targets for the public health departments by the year end of 2010. Correspondingly, the government intended to reduce the death rate of people aged 75 years affected due to cancer by at least 20%. Moreover, people dying due to coronary diseases at the age of 75 years were also expected to be reduced by 40% with the initiatives of public health departments. Moreover, traffic rules have been modified for reducing the death rate by 20% caused due to road accidents. With due concern to all these statistical objectives, the government predicted that effective implementation of policies, will prevent approximately 300,000 premature and avoidable deaths (Boyle, 2011). Improvement of health has evidently been one of the primary objectives of the UK government which represented the taxation initiatives taken by the government. For instance, various measures have been initiated in order to discourage people from consuming addictive products which affected their health in order to limit the possibilities of increasing chronic diseases. Thus, it has been identified that the government is planning for reducing the number of public health authorities, introducing competitive services with the sole intention of lowering the administrative costs in order to cope up with the rising expenditures of health related issues (World Health Organisation, 2011). Furthermore, from the reports of WHO, it has been identified that South-East Asia Region earmarked the taxes collected from the sale of tobacco products accusing those for promoting the health hazards resulted from alcohol and tobacco products. Moreover, it has been observed from the reports that Thailand government imposes health tax amounting to 2% of the excise tax revenue to all tobacco brands, which are either manufactured or imported from other countries. The health tax collected from alcohol and tobacco products accumulate around US $50 to US $60 million each financial year which are spent in developing the health of people living in the nation. In similar context, other Asian countries such as India too levy various types of taxes on certain products that tend to affect the health of the individuals and thereby inhibit the rate of socio-economic development by a certain extent. It was with this concern that Health Cess (HC) tax was introduced in 2005-2006 by the Indian government for all kind of tobacco products. The taxes charged in the HC Act are higher than many other countries, which also varies depending upon the hazardous affect of the product. Thus, it can be stated that earmarking of taxes has a positive impact on the society and its various sectors. Therefore, all developed countries should earmark taxes for particular purposes. Moreover, during the financial crisis faced by the world economy, individual earnings intended to decrease, thereby generating less revenue collected from income tax for the government. HC or other similar health taxes therefore, should be implemented for generating additional revenue which will help the government in funding for the health and social care sectors (World Health Organisation, 2011). Part 3: Critical Comment on Developing Of Health and Social Care Sector Planning is an essential part in which the organisational strategies are evaluated and discussed. However, NHS has often been criticised on the basis of its limitation in terms of proper planning procedures. Thus, Department of Health in the UK is held responsible for providing an appropriate framework which ensures that individual healthcare organisations work within that framework in order to achieve specific targets. Furthermore, the individual organisations are required to prepare their individual plans on approaching the framework in an organised way which can ultimately result in attaining the targets effectively. In the year 2000, NHS presented a plan stating the desired aspirations of the department for the next five years. It has been identified that targets were specified regarding the growth of basic resources such as staffs and buildings which can be covered up with the funds that will be allocated in the beginning of the year. Furthermore, NHS also focused on introducing a management framework assisting the decision makers along with the improved Information Technology (IT) systems. The plan further illustrated areas which required substantial changes in the service delivery systems (Martin & et. al., 2010). From a similar concern, the Department of Health focuses on a time framework of three years for implementing the planned strategies which are based on the Spending Review published by the government. Furthermore, the department of health had set certain national priorities which are being targeted to be attained by the end of 2011. These national priorities were to improve the maintenance procedure of the healthcare service providers in order to preserve hygiene and thus reduce the risk of infectious diseases, enhance the accessibility for patients to the healthcare facilities, and to reduce inequalities in order to maintain effective health for children and adults. Furthermore, the department planned to implement modern technologies that will improve the experience of the patients and ensure staff satisfaction within the organisation. Moreover, the department planned to prepare a response team for providing support during national emergencies related to healthcare, such as viral influenzas (Department of Health, 2000). Capital planning is equally essential as in the case of evaluation and implementing strategies. The process of capital planning principally includes budget determination according to the priorities identified and evaluation of the sources which ensure continuous fund flow. Furthermore, the existing pattern of spending is also intended to be analysed in order to make certain amendments according to the estimated budget. Although individual NHS organisations determine their budgets according to the type of services provided and future requirements for developing certain areas of concern, governmental influences are considered on undertaking day-to-day activities by a significant extent. Thus, capital planning can be regarded as quite important for allocating certain amount from the fund towards training and development of employees. Notably, it is the introduction of modern technologies that have ensured the need for providing training and development programmes in order to make the employees familiar with the improved technologies. In addition, effective workforce planning is required in order to provide the voluntary services related to healthcare to the general public. Since organisations operate following various types of structures, such as trust, private and public, workforce planning shall ensure, hiring efficient employees, who have the competencies and skills in providing effective services. The trusts or NHS organisations generally include members who voluntarily participate in providing social services without any fixed earnings from the organisations. Thus, effective workforce planning shall ensure that the voluntary members are associated with these organisations (Steiss, 2005). Furthermore, with reference to the rapidly rising costs related to healthcare products and services, it can be assumed that proper planning of all factors is essential if the government of UK decides to provide effective services related to health and social care to the citizens of the nation. It is in this context that organisations dealing with operations to provide social services are likely to get impacted if revenues are not generated according to the estimated budgets. Without adequate revenue, the government will not be able to allocate the required funds as demanded by individual organisations. In order to generate additional revenues, the government should thus ensure adequate job opportunities for generating annual income of the people of the nation. The job opportunities created by the government can in turn enforce people for paying income taxes generating the desired revenue to be further used for attaining the determined objectives (Boyle, 2011). In addition, the individual organisations of NHS in the beginning years were responsible for procuring machineries and medicines required for providing healthcare services. However, in 1980s, a centralised process was developed for the procurement of machineries and medical products by the previous regional health authorities. The Department Of Health in 2000 proposed a further centralised approach by establishing NHS Purchasing and Supply Agency (NHS PASA), being responsible for procuring the essential machineries and medical products required by the individual NHS organisations. Furthermore, the development of IT systems and its benefits have initiated the urgency to implement IT technologies in the healthcare organisations. Initially, the type of IT systems required to be implemented were based on the individual NHS organisations’ decisions based on which the costs were allocated. However, as the non-availability of appropriate systems approach investments was low when concerning the implementation of IT facilities, it forced the hospitals to design and implement their customised smaller IT systems (Alberti, 2007). It has further been observed in this regard that majority of the macroeconomists as well as politicians do not favour earmarking of taxes on the basis that it restricts the liberty and financial controls in implementing policies which have been promised during the election campaigns. Critics have also argued that earmarking of taxes establishes apparent restrictions and inadequacy on public finances reducing the flexibility in the adoption of changing situations which results in major reduction of other resources made available. Moreover, earmarked taxes on hazardous items, such as addictive products have high possibilities in assembling and sustaining resources related to healthcare. However, it must be noted that they require potential leaders and social harmony to be enacted efficiently (Prakongsai & et. al.). Recommendations The healthcare sector in UK is generally financed by the government through the tax revenues as well as a small contribution from earmarked National Insurance related governing bodies. It has further been identified that 10 to 12 percent of the total funds used for socio-economic development are generated through private insurance companies and patient co-payments. Thus, a tax-financed system can be included or employed on a contractual basis to support the entire process with systematic framework. It has been observed in this context that a tax-financed system, such as voluntary health insurance or social insurance schemes can be effective in relation to the spending on healthcare services. Thus, it can be stated that funding sources are the most important aspect in developing the healthcare service providers’ abilities. Increasing the taxation rate for high income groups will be an ideal solution in coping up with the rapidly increasing medical costs. Moreover, for middle and low income groups, ensuring that they participate in the voluntary insurance schemes can further reduce the pressure of the government in generating additional funds for allocating adequate resources towards healthcare sectors. Last but not the least; even though implementing modern technologies in the national healthcare systems can be costly, it can reduce the cost of services as well as time required for recovering (Lee, 1999). Conclusion With reference to the above discussion, it has often been argued by experts that the common trend of socio-economic activities advocates the notion that the citizens of a nation shall be willing to accept higher tax rates if it has been earmarked for specific purposes. Furthermore, from the above literature and evaluation it has been apparent that scarcity of funds and resources has emerged as one of the major issues governments are facing for developing the health and social care sectors in providing efficient services to the general public. Thus, amounts generated through earmarked taxes, irrespective of their proportion can play an imperative role towards promoting effective healthcare activities. In addition, it should be suggested that efficient and transparent government is required for managing the funds irrespective of the nature of sources, where voluntary health insurance schemes can become an alternative resource for individuals in attaining efficient healthcare services. References Anesi, V., 2003. Earmarked Taxation and Political Competition. Working Papers. [Online] Available at: http://www-gremaq.univ-tlse1.fr/perso/anesi/working_papers/Earmarking%20A.pdf [Accessed October 01, 2012]. Alberti, G., 2007. 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