On 1 June of this year, the carbon tax kicked in. The stated intention behind this additional tax is to reduce South Africa’s carbon emissions. Given the effect and cost of climate change in South Africa and the world, there is certainly a need to reduce carbon emission. However, this extra tax which has been in the works for a decade will translate into bad policy, at the worst of times.

The carbon tax essentially fines companies R120 per ton of carbon dioxide emissions over the set threshold. Strong proponents of the carbon tax argue that this rate is too low and will not be enough of a financial disincentive to change behaviour. There is a consensus that this additional tax will adversely affect the economy, and increase the cost of living even further.

Industries like the mining, steel, chemical, cement, paper and even the South African airline industry, which represent millions of jobs combined, have expressed their strong opposition to this additional tax, and of course, they would. It is inevitable the bottom line of companies will be affected and that industrial development in South Africa will take a knock in the short to medium term.

Recent World Bank policy research also found that carbon tax causes overall economic loss measured in terms of GDP, in other words slowing economic growth. This during a time when the South African economy is stagnating and is facing its greatest unemployment crises ever, with almost 10-million people unemployed.

Besides job losses, the additional tax will be passed onto consumers, with the first impact being an increase of 9 cents per litre in fuel prices. Consumers are already overtaxed with the increase in VAT and increasing electricity prices.

There are two possible scenarios that may arise from the introduction of the carbon tax; it is likely that the carbon tax will not reduce emissions, but cost jobs and increase the cost of living; or the tax will  reduce emissions by slowing down economic activity, which in any case costs jobs and increase the cost of living. The constant remains the same, reduced employment and increased cost of living. Good intention, bad policy.

However, there is a more concerning possibility, that the carbon tax was never intended to reduce emissions but was set up at a rate that will increase tax revenue while not changing behaviour to secure future tax revenue. It’s a well-known fact that the South African Government has a spending problem and has almost run out of options to impose extra taxes on South Africans.

Pravin Gordhan, as Minister of Finance, was notorious for delivering budgets that did not outright upset anyone. However, in hindsight, people realised that they are being taxed around every corner, small amounts, on ad hoc items. Window taxes everywhere. Textbooks would define this as rent-seeking. The carbon tax might very well just be more rent-seeking.

If the South African Government was serious about reducing emissions, the rate would have been higher, but, this would actually reduce emissions and would mean less tax for the government. On the other hand, if the Government was serious about using the revenue from the carbon tax for environmental purposes, the legislation would say so, but it doesn’t. In other words, legally the revenue generated from the carbon tax could even be used to pay for a minister’s spouse to travel internationally, or for a department’s entertainment.

The DA opposed the carbon tax, not because of the intention, or the portrayed intentions, but because it is a bad policy that will have an adverse impact on the economy and job creation. Furthermore, it continues the tax onslaught on South Africans, and represents, intentionally or not, the continuation of rent-seeking by the South African government. DM