Environment has forever been a lip-service ministry, given usually to some also-ran politician, the present incarnate Marthinus van Schalkwyk being a refugee from a defunct political party. But there are now signs that it is going mainstream.
The Treasury has tabled a discussion paper that seeks to move the environment from the periphery to the centre of economic policy-making.
Its latest draft paper, A Framework for Considering Market-Based Instruments to Support Environmental Fiscal Reform in South Africa, envisages radical reshaping of the tax landscape to promote sustainable development.
The 139-pager, released last week, is a set of possible avenues to realign the tax code with desirable environmental outcomes and an audit of the country’s current environmental policies.
The picture is not good, the overall impression being that present policies often contain high environmental costs; that there is little or no coordination from national to provincial to municipal level; that tariffs are often ad hoc, complex and non-transparent; that there are no incentives, for instance, to reduce waste; and that declining scarce resources such as water are not correctly priced.
Current policies also discourage donations for conservation purposes, favour agriculture over conservation use, encourage the overuse of harmful pesticides and fertilisers, penalise fuel-efficient cars and encourage the destruction of biodiversity.
Compared with best practice elsewhere, we have a long way to go.
The report notes that, as a country, we use energy inefficiently and produce twice the amount of waste of our developing-economy peers.
It seeks to use taxes to help move the country to a more sustainable footing. “Regulatory approaches form the backbone of government’s approach to dealing with environmental issues.
“Market-based instruments, by seeking to correct market failures through the price mechanism, are likely to achieve certain environmental outcomes in a more efficient way.
“Some of the main environmental challenges in South Africa include air pollution, climate change, biodiversity loss, land degradation, water scarcity and pollution and excessive waste generation and disposal,” says the report.
South Africa is sensitive to the potential impacts of climate change and is a significant contributor to global greenhouse gas emissions.
“South Africa is heavily reliant on coal to meet the majority of its energy requirements and over 90% of electricity generation is coal-based, accounting for approximately 40% of all carbon-dioxide emissions.”
Pressure arising from population growth, urban and industrial developments has resulted in the transformation of about 25% of the country’s terrestrial habitats from their natural states.
“A large proportion of South Africa’s soils are unstable. It is estimated that approximately 500million tons of topsoil is lost annually to wind and water erosion. In addition, the increased use of agrochemicals has resulted in the acidification of about 2,5million hectares of soil.”
Specific reforms mooted by the report include disallowing income-tax deductions for farmers to eradicate noxious plants and prevent soil erosion, as this may be countering biodiversity conservation incentives; rethinking the diesel fund rebate, which benefits the primary sectors at the expense of conservation and environmental aims; scrapping zero-rating on farming inputs such as pesticides and fertilisers, as this incentive possibly encourages their overuse; reconsidering favourable tax treatment for company cars as this may contribute to increased traffic and related pollution; scrapping zero-rating of VAT on paraffin because of health implications for users; and reforming property taxes to promote conservation land use.
The report defines an environmentally related tax as one “whose tax base (or proxy) has a proven specific negative impact on the environment”. It says that only 2% of gross domestic product goes to these taxes, about 10% of total tax revenue.
The biggest environmentally linked tax is the general fuel levy, which is responsible for 70% (R19billion) of all environmental taxes.
“It should be noted that the majority of existing environmentally related taxes and charges were introduced with the intention of raising revenue. Consequently, the environmental effects were not a strong influence in their design.”
South Africa does have a tax that was introduced for environmental reasons — the 3c levy on plastic bags — but the report says that it “does not seek to incentivise changes in consumer behaviour. Instead, it seeks to raise revenue, some of which will be used to fund plastic recycling operations.”
The report stresses that it is a discussion document. It also spends some time detailing good tax principles such as neutrality, equity, certainty, simplicity and the need to minimise costs in tax collection.
It sees fiscal measures supporting others such as regulation and public information in shaping behaviour, but argues that pricing can play a leading role in creating desirable environmental outcomes.
It also stresses that possible new taxes have to be assessed in terms of their effect on the competitiveness of local industries.
If it’s broken …
Transport
Environmental costs associated with transport have been estimated at between R34billion and R55billion a year, says the new Treasury report.
“Of particular importance is the impact of vehicle emissions on human health, particularly pollutants such as particulates, sulphur dioxide and nitrogen oxides in urban areas.”
Strategies now being implemented to deal with transport-related pollution include prohibiting the use of lead-based additives (implemented in January 2006) and reducing sulphur content tenfold by 2010.
South African vehicles are also required to increasingly conform to European Union standards during the phasing-in process between 2004 and 2012.
The report notes that reforms to existing vehicle excise duties could play an important role. “Currently, new passenger and light commercial vehicles are subject to an ad valorem customs and excise duty based on their value.
“The tax structure is a luxury tax based on price. The more expensive the vehicle, the higher the tax burden (up to a ceiling of 20%).
“To the extent that more expensive vehicles use better technologies to reduce emissions into the atmosphere, current imposts are not supportive of environmental objectives.”
Electricity
Coal-based electricity generation accounts for a large proportion of greenhouse gas emissions and is a large source of sulphur dioxide, nitrogen oxide and particulate emissions. The report cites studies that have estimated the cost of these emissions at between R4billion and R30-billion a year.
Municipalities that operate as electricity distributors generate surpluses, meaning that they generate revenues that exceed the costs of providing this service. The surplus amounted to R1,4billion last year.
“This hidden surplus could be viewed as an implicit tax, the extent of which varies considerably between jurisdictions.”
“Under the electricity distribution industry restructuring process, local governments will lose this revenue stream and, so as not to adversely impact on local government finances, need to be compensated for this loss.”
Waste
South Africans generate on average about 0,7kg of waste a day, comparable to many Organisation for Economic Cooperation and Development countries, while other developing countries generate 0,3kg a day.
“The relative high per capita waste generation in South Africa is partially explained by the large and heavy volumes of waste generated by the mining (87% of total waste), industrial (3%) and power generation (4%) sectors.”
The National Waste Management Strategy of 1999 emphasised the need for waste prevention and minimisation. It aims to reduce the volume of waste by 50% and the volume of disposals by 25% by 2012.
Where households are charged directly for waste removal, it is usually based on flat rate charges, household income or household plot size.
“The relationship to the level of waste generated is not always strong,” says the report. “In general, charges for waste disposal appear quite low in South Africa compared to other countries.”
Water
The Department of Water Affairs and Forestry is working on the waste-water discharge system, which could include a tax linked to the level of discharge.
Raw water is free in the sense that the charges imposed seek only to recover the costs incurred by the department in supplying water, and do not reflect the opportunity cost of the way in which water is used.
“Many municipalities operate variable tariff systems whereby progressively higher levels of consumption are subject to higher charge rates. Such pricing systems are mainly limited to the domestic sector, which accounts for a relatively small proportion [10%] of total water use.”
Internationally, taxes are used to encourage water conservation and to reflect the scarcity value of water.
In Denmark, for instance, taxes on water consumption are estimated to have brought about water savings of 13% in the domestic sector between 1994 and 1999. — Kevin Davie