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Treasury’s Carbon Tax Makes no Sense

22 August 2013   (0 Comments)
Posted by: Author: BusinessDay
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Author: Editorial (BusinessDay)

Taxes have two main (legitimate) functions: to raise revenue for the state, and to provide a disincentive for activities government, in its wisdom, wishes to discourage.

There are, of course, a number of illegitimate reasons taxes are imposed too, such as to maliciously punish particular classes of people, or to support a particular ideological standpoint.

The Treasury’s carbon tax proposals might appear to qualify as a legitimate form of tax since, although they will not raise a huge amount of revenue initially, the potential exists for this to increase over time, as taxes are wont to do.

And everybody knows carbon is a bad thing that needs to be discouraged before the globe spontaneously combusts due to greenhouse gas-induced global warming, so making it more costly for industry to spew carbon dioxide (CO²) into the air must be a good thing.

But the argument does not survive scrutiny. For a start, the Treasury is on record as insisting that the aim of the new tax is not primarily to raise revenue, although when times are tough it isn’t going to turn down an extra billion or two to keep that budget deficit in check. Then, while the general rule of "tax what you want to discourage" applies, it only makes sense where there is scope for behaviour to change.

It’s no good taxing an economic activity when there is no viable alternative. In the case of carbon, the government has already had to recognise that the biggest culprit by far when it comes to CO² emissions is Eskom, which not only cannot possibly afford to pay an additional tax and at the same time finance its capacity expansion programme, but is in any event a state-owned enterprise whose behaviour is determined by government policy. So it will be exempt.

We also sit with a problem of contradictory policy — the government wants to cut South Africa’s carbon emissions in keeping with its rather rash international commitment, and simultaneously reindustrialise the country and beneficiate more of the primary products it is currently exporting, both of which are inclined to produce more CO².

A company such as steel producer ArcelorMittal South Africa is therefore caught between a rock and a hard place — soaring electricity costs and a potential R600m a year carbon tax liability. Can someone please join government policy together?


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