THE BLOG
01/03/2018 13:30 SAST | Updated 01/03/2018 13:30 SAST

Environmental, Social And Governance Lessons From 2018 Budget

If the VAT increase is to remain in place, pragmatism and social justice demands that this list is expanded to cover other essentials.

Rodger Bosch/ AFP/ Getty Images
Former finance minister Malusi Gigaba delivers the 2018 Budget speech in the National Assembly on February 21, 2018, in Cape Town.

Amid the furore that has been generated by the hike in VAT from 14 percent to 15 percent, former finance minister Malusi Gigaba in his Budget speech on February 21 also announced that a carbon-tax bill will be introduced most likely in 2019.

These were the two salient points of interest to me in the speech, because of the lessons contained therein.

Firstly, the government has signalled its intent and resolve to deal with climate change by introducing the anti-pollution measure in the form of the carbon-tax bill. The response in the media has been muted, but this is an important piece of legislation in so far as it demonstrates that government is alive to the fact that it has to play a leading role in dealing with environmental challenges.

This is encouraging. However, going forward government efforts to deal with climate change issues need to be synchronised. In the past, there has been a fragmented approach bordering on the schizophrenic [sic].

The Thabametsi power station case is instructive. On January 30, 2018, exactly three weeks before the carbon-tax bill announcement during the Budget speech, environmental affairs minister Edna Molewa signed a decision to allow for the construction of the coal-fired power station to go ahead as planned – despite overwhelming evidence of the very high emission and water-scarcity risk it poses.

If there is a lesson to be drawn from this VAT hike, it is that government deficit is a breeding ground for corruption.

This silo approach by government in its climate-change mitigation and adaptation effort does not bode well as an example to the corporate sector – in particular, the mining and financial industries that for too long have only paid lip service to environmental concerns arising out of their business operations.

Nonetheless, this proposed tax is welcome not only because it will compel businesses and companies that pollute the atmosphere by emitting a high level of carbon to seriously begin to consider planning the transition to a low-carbon economy in order to avoid punitive tax charges. It also demonstrates government's commitment to comply with the 2015 Paris Agreement on climate change, which the country ratified in November 2016.

Secondly, the increase in VAT has generated mixed feelings. There are two opposing views – one group of commentators, while acknowledging the difficult balancing task the minister had to perform to fund the revenue shortfall, have largely welcomed national Treasury's decision, if only as a necessary evil to stave off further ratings downgrade.

The other group – which I am inclined to agree with – opines that a VAT increase is by definition regressive and cannot be justified – not least by the argument that the poor will be cushioned on the assumption that they spend their income on consumption of goods and products that are VAT exempt, to the exclusion of everything else.

This is condescending, as the list of zero-rated items is woefully inadequate, and if the VAT increase is to remain in place, pragmatism and social justice demands that this list is expanded to cover other essentials.

The budget black hole was largely corruption-induced through collusion between both the state and the private sector – as an example, the McKinsey and Eskom saga springs to mind. But there are many other similar scandals in which private players have been willing accomplices in corruption, especially within state-owned enterprises that have been widely reported in the media.

Interested stakeholders must remain vigilant and at all times call for accountability in the way in which government conduct its affairs.

Ironically, when it came to remedying the situation, government opted to raise VAT but leave corporate tax untouched at 28 percent – a rate which is relatively low compared to the rest of Africa, and also considering South Africa's developing-country status and the needs of its most vulnerable people.

This evokes a feeling that when it comes to policy decisions, the government tends to privilege the concerns of rating agencies and big business, with no due regard to the dire social implications – increased suffering and hardship for the majority poor citizens – poorly thought-through policies leave in their wake.

If there is a lesson to be drawn from this VAT hike, it is that government deficit is a breeding ground for corruption. And corruption should neither be tolerated nor excused, even in the name of radical economic transformation – itself no more than lofty rhetoric, as evidenced by the absence of tangible material benefits accruing to those at the base of the pyramid.

To conclude, all in one speech the government shows that in its management of environmental, social and governance (ESG) risk factors, which have an impact on the long-term sustainability of the country's economy, it is capable of both the good and ugly.

To ensure the government gets on – and stays on – the straight and narrow path in managing exposure to these risk factors, civil society and other interested stakeholders must remain vigilant and at all times call for accountability in the way in which government conduct its affairs.