A bad idea
Important principles at stake
THE WESTERN CAPE GOVERNMENT will become the first province in South Africa to introduce new taxes when it implements a 10c/litre fuel levy next year. Gauteng is also considering raising new taxes. Should these developments raise concern that the provinces will cause SA’s tax burden slowly to creep upwards? Does it make sense for the provinces to raise their own taxes?
The Western Cape’s plans have generated controversy, with Cosatu even threatening to take protest action. But it’s important to note that the fuel levy will raise only R300m – a tiny drop in the ocean when seen in the context of Government’s planned allocations to provinces in the 2008/2009 fiscal year of R229,3bn. The addition to the tax burden won’t be felt, and there won’t be a noticeable effect on the Western Cape economy. It’s not as if businesses will relocate from the Western Cape to escape the tax.
The argument in favour of provincial taxes holds that it’s a more transparent and democratic way of doing things. Lower tiers of government are closer to ordinary people because that’s where the delivery happens and it’s easier for citizens to hold those spending authorities directly accountable for delivery. The Western Cape is raising the money to pay for road building and maintenance and its citizens will be able to see clearly whether their money has been well spent.
But what if some provinces go crazy and start taxing people to death? That can’t happen, as the Constitution stipulates that provincial tax-raising can’t be implemented “in a way that materially and unreasonably prejudices national economic policies, economic activities across provincial boundaries or the national mobility of goods, services, capital or labour”.
One of the arguments against allowing provinces to raise their own taxes is the fact that it favours rich provinces at the expense of poorer ones. The poor provinces don’t have the tax base to be able to raise taxes and have proportionately less available to spend than their richer counterparts.
Gauteng has indicated that it’s also considering raising taxes. That was first mooted by finance MEC Paul Mashatile in the presentation of his medium-term budget last year. The comment was met with howls of protest from opposition parties.
Mashatile’s spokesman Percy Mthimkulu says the province has undertaken a study to determine whether it will be feasible to introduce new taxes or levies. The study has been completed and Gauteng’s executive council is considering its findings. “The executive council will take into account the big picture, including the fact that Gauteng will have a R1,6bn surplus in 2009/2010. We have to look at existing resources before we consider anything else.”
Though Mthimkulu didn’t want to be drawn further, the implication of what he’s saying is that Gauteng won’t need to raise taxes because it will be running a surplus. Fears of a creeping tax burden would seem to be misplaced, especially given the constitutional guarantees. Still, once the door has been opened to a fuel levy, you can be sure it will rise in future years.
The fact is that there are important principles at stake. How do new taxes square with the fact that the provinces are battling to fulfil their spending obligations? They’re already sitting on unspent funds, so why should the taxpayer cough up more?
A spokesman for Western Cape finance MEC Lynne Brown says the province is projecting to spend “close to full allocation” of the R1,3bn allocated on roads in its 2006/2007 fiscal year. But that’s not quite a situation of severe strain that requires extraordinary measures.
Another reason why it doesn’t make sense to plan for new taxes now is the fact that the provinces’ continued existence is being called into question. The ANC has issued a draft discussion document that includes a section on the future of provinces in SA’s governance model.
The argument in favour of provincial taxes holds that it’s a more transparent and democratic way of doing things.
The document strongly suggests that the ANC favours redistributing resources away from the provinces towards local government. Local government is where government is closest to the people and where transparency and accountability in delivery are most visible.
The discussion document says there are three options. First, to retain the status quo, but to implement changes within the framework of the Constitution. Those changes would be aimed at strengthening local government.
Second, to remove the provincial system altogether, leaving a two-tier system of government. That would release significant resources and capacity for local government. The third option is to reduce the number of provinces.
The document says: “The three-sphere (sic) system is a complex system to operate, which results in inefficiency, overlapping roles, long decision-making processes, weak information flows and the dispersal of public sector skills and experience within the State.”