South Africans already pay three carbon taxes, so why is government imposing another one?
15 July 2015
Posted by: Author: BDO South Africa
Author: BDO South Africa
With no real focus on behaviour change, CO2 Tax is just another taxation scheme to make up for the national budget deficit
Taxes now make up one-third of the retail price of fuel after Finance Minister Nene raised the levy by 80.5 cents ($0.07) a litre (0.26 gallon) in the 2015/2016 Budget. He also increased electricity levies by 2 cents to 5.5 cents per kilowatt-hour to help curb power demand and will phase these out when the carbon tax is implemented - or so he says.
Dorah Nteo, the chief sustainability specialist for the Tshwane municipality said, "What has been introduced effectively is the fuel levy for motor vehicles, rather than broader carbon tax. That is because with cars you have a choice between big cars or small ones, there are alternatives.”
However, the structure of our economy coupled with a poor growth outlook, means that taxes like the CO2 Tax will further affect South Africa's global competitiveness without effecting any meaningful climate change objectives and therefore should be relooked, says Shaun Nel, Director of Consulting at BDO South Africa.
"This is just another tax burden to make up for the budget deficit.” He goes on to say, "We actually already have three carbon taxes in place - an Environment levy on coal fired electricity, Fuel levy and the proposed Carbon budgets from Department of Environmental Affairs – so where does this further carbon tax fit in?” questions Nel.
The carbon tax will add significantly to revenue at a time of fiscal constraint as the Treasury estimates it could generate between R8bn and R30bn a year depending on final allowances and exemptions.
But Nel stresses that while there is no global agreement on a price for carbon tax so how can our government decide what price to tax this at, given that our global competitors have not priced carbon into their economies?”
It is noteworthy that one of South Africa's key global competitors, Australia, has scrapped plans to introduce such a scheme.
Those in support of the tax say it could play a role in achieving the transition to a low-carbon economy and in meeting SA's global commitment to reduce greenhouse gas emissions.
Apart from consultants in the sector, those in the carbon trading environment may like to see a carbon tax is. However, with the bulk of the carbon emitted coming from only two entities, Eskom and Sasol, it may limit carbon trading opportunities; thus the boost it may provide to that particular market may not be as large as expected.
"If this is tax is about greenhouse gases, then Government needs only to effect a behaviour change through government policy,” continues Nel. "They have the IRP (Integrated Rescue Plan), which prescribes the generation technologies for electricity. A CO2 Tax on ESKOM will merely be passed onto consumers without providing alternative choices”
Econometrix has calculated the harsh economic impact of these effects. The carbon tax would slow gross domestic product (GDP) growth by 0.4 percent a year, resulting in a 6.5 percent reduction in the size of GDP by 2030, or R350bn, and a reduction of almost 1.4 million in the number of jobs available.
Finally, carbon tax and higher prices of the large input cost increases due to high electricity prices are contrary to the country's own beneficiation policies, and some companies are now relocating elsewhere because of the non-competitive electricity costs in this country.
This article first appeared on bdo.co.za.