Judge Dennis Davis, who is leading South Africa’s Davis Tax Commission (DTC), has urged government not to introduce the carbon tax in the current “fragile” economic environment.
The National Treasury released the Draft Carbon Tax Bill for public comment on November 2, outlining an initial marginal carbon tax rate of R120/t of carbon-dioxide-equivalent (CO2-e) emission. However, the Bill also proposed various tax-free thresholds, which the National Treasury indicated would reduce the effective carbon tax rate to between R6/t and R48/t of CO2-e.
The proposed tax, which is inline with South Africa’s commitments to reduce climate-changing emissions, has been heavily criticised by industry, with the Chamber of Mines indicating that the implementation of the proposed tax should be delayed by five years, highlighting that there had not yet been a full regulatory impact assessment of its economic costs and benefits.
Finance Minister Nhlanhla Nene indicated in October that government had not yet determined an actual implementation date, hinting to a possible delay beyond 2016, with the tax having initially been slated for introduction in 2015.
Speaking at the fourth yearly International Economic Law Update conference held at the University of the Witwatersrand on Thursday, Davis expressed “anxiety” over implementation of a carbon tax, warning, too, that it would be a retrogressive tax in the South Africa context.
The DTC’s work was being guided by three principles, one being that it needed to foster a “legitimate system”, which could not be retrogressive in the context of extreme inequality. In other words, the tax system had to be progressive in nature, with higher income earners paying at a higher rate than lower-income earners.
The other two principles were a tax system that could deliver sufficient revenue to support government’s capital investment plans and the “social wage”, as well as to encourage, rather than discourage, economic growth.
“Why [would the carbon tax be retrogressive]?” Davis questioned. “Because the cost of the carbon tax will be passed on to poor people. Why? Because our major emitter is Eskom and if anybody believes that Eskom is going to absorb the cost of a carbon tax, quite frankly, they should rapidly go to Tara, or another mental institution.”
He was, however, in favour of behavioural change in the area of carbon emissions and said it might even be worthwhile introducing the tax at a zero rate to assess its impact.
“But given the fragile nature of the economy one needs better data . . . So while we are totally supportive of the objectives of the carbon tax and we certainly eschew the argument to the contrary, what we are saying [is that] we do not have a confident enough basis on which to introduce that tax at present”.
Asked whether the message had carried through to the National Treasury, which had prepared the Bill, Davis stressed that the DTC (set up by former Finance Minister Pravin Gordhan in 2013, was an independent advisory structure rather than one that negotiated the terms of eventual tax decisions.
“What we do is we make our recommendations to them and to the public at large . . . to promote a national debate,” Davis said.
But given that the Bill was entering the legislative process, the DTC would probably make a presentation to the Parliamentary committee to express its anxiety over the tax.