Given that the idea of introducing a land tax, or property rates on farm land, originated from the unpopular previous minister of agriculture, Derek Hanekom, farmers have always been sceptical about its real intent and political motivation.Â
The upshot over the past 10 years was various interactions between organised agriculture and government structures and several debates in Parliament.
Farmers’ resistance to even the principle of such a tax, which is included in the Property Rates Bill finalised two weeks ago, is based on the following arguments:
The tax burden in the country already exceeds the limit of 25% of gross domestic product (GDP) set by national economic policy;
Various taxes already apply on the agricultural sector, while various tax shelters have been eliminated;
The sector used limited municipal services and farmers themselves provide many of them — like water and power — to farm workers;
The return on agricultural land is low — around 5% — emphasising the low level of profitability in agriculture and the difficulty of absorbing further cost increases.
Farmers were, and still are, concerned about the so-called non-fiscal — including political — considerations often associated with land taxes.
AgriSA has maintained throughout that property rates are a particularly blunt instrument to redress the effects of past discriminatory legislation. They will not support new entrants to farming, as they must eventually reduce net income.
They also believe that speculation in land will not necessarily be discouraged by the tax and that it is not needed to step up productivity.
After initial discussions, a section was included in the final Constitution allowing municipalities to introduce rates on property. Also included was a section requiring the economic impact of such rates to be evaluated and providing for the introduction of national legislation.Â
These additions to the Constitution made it clear that there was no point attacking the principle of property rates on newly rateable farm land.
From an agricultural perspective the most positive features of the latest Bill are that in their respective rates policies, municipalities will have to take farmers’ concerns into account. This will be done by evaluating the extent of services provided by the municipality to farms; the contribution of agriculture to the local economy; the extent to which farmers contribute to service delivery and the contribution of agriculture to the social and economic welfare of farm workers.
AgriSA believe the government made a serious attempt to strike a series of balances between the needs of the municipalities and stakeholders.
The success of the implementation of the legislation will eventually depend on capacity and communication at local government level. Based on the outcome of various recent court cases, this seems to be where the pudding will be tested.
Johan Pienaar is an economist for AgriSA