Last week's contribution focused on the governance of this country, albeit in a provocative tongue-in cheek manner. This week, while keeping to the same approach (after all this is the silly season!), I would like to share with you some thoughts on financial governance, and more specifically on government revenue.

I need to state from the outset that although we refer to it as government revenue, this is really the money that we pay in direct and indirect taxes and for services that we receive from the public sector. There is also, added to it, funds such as grants and monies received from state-controlled entities or the Central Bank of Malta. There is probably something to comment about each and every item with exception of grants and this is what I want to do.

Total recurrent revenue amounted to just over Lm400 million for the first six months of this year. Income tax and income from social security contributions amount to 46 per cent of this. Hence the reliance by the public purse on income arising from our labours is quite significant. Two considerations need to be made. First, when compared to last year, the reliance is greater this time. The increased income tax and social security contributions generated are proof of a growing economy. The second consideration is whether government can use other means of raising revenue without the need to tax us directly.

Here we come to the other items of revenue. Starting with rent, one needs to appreciate that the Government Property Division has worked hard and managed to increase revenue from rents. From direct experience, I know that the staff of this Division is on a constant lookout to make sure that rent agreements are being followed. However, I am certain there is still a significant amount of public property, where the return that accrues to the public purse is nowhere near what one would expect today.

This is happening because the applicable rents are still at a low rate, or because the Division cannot take the property over, or because the property has been left undeveloped. There are those who think that part of the solution to the fiscal deficit problem is making sure that public property generates a rate of return comparable to that what is expected in the private sector.

Then there are monies that are paid to the government by public corporations or by the Central Bank of Malta. Such monies are profits or surpluses generated by such entities. Unfortunately, in entities that do not rely on subventions from the Budget, there is the misconception that they do not need to control their expenditure like government departments or entities that rely on government subventions. This very often results in profits or surpluses that are not the optimum that could have been generated. For example, if the Central Bank of Malta were to be overmanned (please note the use of the conditional), then the level of profits that it passes to the government are in fact lower than they should be. Is this in fact happening?

Forms of indirect taxation (VAT, customs duties, excise tax) form a substantial chunk of government revenue. They represented 30 per cent of government recurrent revenue in the first six months of this year, and when compared to last year, they registered an increase of five per cent. Many of us still remember the upheaval we had in the middle of the 1990s after VAT was introduced, then removed and then reintroduced.

Today no one talks of removing it a second time as everyone recognises that it is an efficient form of taxation. The shift towards indirect taxation, away from direct taxation, favours the individual as it enables him or her to earn more money, and tax is then paid once that money is spent.

This point leads to the other significant part of government revenue - fees of office, licences, taxes and fines. Altogether they represent 15 per cent of government recurrent revenue. The benefit of this form of revenue is that it is based on the principle of "the user pays". I do believe there are some services, such as health and education, which need to remain free. However, are we so sure that whatever we have for free in this country should remain so? Are there some services provided by the public sector free of charge that should be made against payment? Moreover, in the case of some licences, are we so sure that the licence charged reflects the real economic value to the country?

If we do have a licence, the level of which does not represent the real economic value to the country in terms of the resources it uses up, then it is the taxpayer that is footing the bill. Let me take two practical examples. Is the fee charged to the boat owners for berthing in Msida or Ta' Xbiex too low, too high or just about right? In terms of use of resources, we should not consider only the space that is being used in the berthing marinas, but also the pollution of our sea and the inconvenience they cause to the public.

The second example is the level of road tax that is paid on personal vehicles (not commercial ones) that have engines that are above a certain size, say above 2.5 litres. Given that they use more fuel and therefore pollute the environment more, are they being charged the right amount of road tax?

Why is this discussion important? The various forms of taxation or licences are the tools that any government have to distribute income from one segment of the population to another. The profits or surpluses generated by government-controlled entities are also a tool to support public sector expenditure. The objective of the various forms of revenue is to maintain a level of efficiency in the economy, while strengthening social cohesion. It is always easy to tax the fixed income earner more, but is this the right approach? I strongly feel that we need to shift towards forms of revenue that are directly linked to consumption/usage, if we wish to reduce inefficiencies in our economy.