Supplementary Budget 2020

New Carbon Tax gets roasted by AA, Cosatu

(iStock)
(iStock)

There has been largely negative reaction to Finance Minister Tito Mboweni's announcement on Wednesday that a Carbon Tax - which forms part of government's efforts to deal with climate change - will be instituted in early June on petrol and diesel. 

The tax is based on the "polluter pays" principle.

It prices greenhouse gas emissions, and aims to ensure that businesses and households take pollution into account in their production and consumption investment decisions, Treasury explained in its 2019 Budget Review document.

"The tax will assist in reducing emissions and ensuring South Africa meets its commitments under the 2015 Paris Climate Agreement," the Budget document read. It will be reviewed in three years.

From June 5, 2019, a carbon tax of 9 cents per litre will be implemented on petrol and 10c/l on diesel. Refunds cannot be claimed against the carbon tax, Treasury added.

'Inferior fuel'

The Automobile Association, in a statement in response to the Budget, said the tax was "grossly unfair" as South Africans will be paying an emissions tax on "inferior quality fuel" despite not having access to higher quality fuels, which are available in many other markets in the world.

The Organisation Undoing Tax Abuse (OUTA) raised concerns that the tax would push up the price of consumer goods, along with other fuel levy increases.

"This tax is a cynical abuse of public sentiment under the guise of tackling climate change, which is an imperative that requires urgent action," said Heinrich Volmink, executive head of OUTA's national division.

The carbon fuel levy appears to be "disingenuous", as there are no clear links to behavioral changes or in line with climate change mitigation initiatives, he added.

"Just as the plastic bag tax has not changed consumer behaviour or reduced pollution, and the funds were not used for recycling initiatives as initially promised, this carbon tax on petrol will just be another revenue stream for government’s coffers," OUTA's statement read.

Workers 'abandoned'

Labour federation Cosatu also commented that the carbon tax, in addition to an increase in the sugar beverages tax, was an indication that government had abandoned previous commitments to protect vulnerable workers.

Momentum Securities, Nancy Bambo and Stephen Meintjes are of the view that the carbon tax will impact steel and cement producers, as they are known as the biggest contributors of greenhouse gases. Energy intensive and energy producing companies will also likely be affected.  

Affected companies include ArceloMittal, PPC, Afrisam, and Sasol.

Andrew Howard, head of sustainable research at Schroders, however, is of the view that the tax of $8 to $9 per tonne government is targeting falls short of the $100 per tonne level needed to be effective in combating climate change.

"That said, it’s a start, and sets a platform for tougher action in the future," Howard said.

He also noted it would definitely impact companies' profits, but investors needed to start thinking about the impact of the tax and plan accordingly.

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