South Africa set for carbon tax fights

The National Treasury is at pains to assert that the impact of its proposed Carbon Tax will be large neutral to the economy and job creation. Organised business is not convinced.

The National Treasury released a draft of the Carbon Tax Policy Paper yesterday. “This is the second and final round of comments requested on carbon tax policy, before government proceeds with the publication of draft legislation to give effect to carbon taxes later this year for implementation from 1 January 2015”.

The scene is set for a big debate; a classic debate pitching the push towards a greener economy against concerns, mainly from the private sector, that such a push should not come to kill the economy.

Business Unity South Africa (BUSA) launched the first salvo yesterday saying it does not accept that the impact of a carbon tax on the country’s economic growth and employment will be largely neutral. “The extent to which the proposed revenue recycling measures will be successful remains uncertain pending further investigation,” said BUSA.

The Carbon Tax Policy Paper spots a phased introduction of the tax. A rate of R120 per ton of CO2e increasing at 10% per annum will be implemented during the first phase of five years. “When the tax-free threshold and additional relief are taken into account, the effective tax rate will range between R12 and R48 per ton of CO2e (and zero for Agriculture and Waste)”.

Treasury’s press statement said “The primary objective of implementing carbon taxes is to change future behaviour, rather than to raise revenue”. As a result the proposed tax starts with a relatively low carbon price, and then progressively rises significantly after five to ten years and beyond. This approach, said the statement, provides industry and other major emitters sufficient time to innovate and invest in greener technologies for the future.

Treasury added that “Economic modelling undertaken suggests that a broad based carbon tax will make a significant contribution towards emissions reduction with limited negative macroeconomic impacts. The impact on the country’s economic growth is shown to be largely neutral if accompanied by effective revenue recycling measures”.

BUSA said it welcomes the opportunity of a second round of comments but questioned as the set legislative deadlines can be met.

“While BUSA has consistently supported the need to move to a lower carbon intensive economy as being in the long run interests of South Africa, it believes that the carbon tax proposal needs to be further critically interrogated.  BUSA would urge great caution in the implementation of a carbon tax in South Africa, not only because both external and internal economic circumstances have changed considerably since the carbon tax was originally conceived, but also that there remain a number of challenges around the carbon tax proposal that need to be taken into account in the final design if serious unintended consequences are to be avoided.

BUSA said there is a mismatch between the incidence of the carbon tax on industry and consumers generally, on the one hand, and the recycling benefits on the other.

The decision to not abolish the electricity levy – which is essentially a tax on carbon – is inconsistent with the commitment to do so made by the Minister of Finance in his 2013 Budget Speech.

The Road Freight Association (RFA) had recently expressed grave concern over the level of the carbon saying such a tax will devastated the already “over taxed” industry is it was too high.

Here we have uploaded the full Carbon Tax Policy Paper for Public Commnet

Carbon Tax Policy Paper (May 2013) (2)

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