June is typically a quiet time on campus – students are preparing for and writing exams and the lecturers are marking scripts – and there is not much news to blog about. Luckily, COSATU has provided us with some fodder for a blog today. Yes, you thought it was all over, but actually the e-tolls saga is ongoing. If you want to recap the academic economists’ arguments, have a look at our earlier blog post. Yesterday we prepared a clipboard with the latest from government, COSATU and OUTA. This morning we just want to offer a quick lesson in undergraduate economics.
In the clarification of COSATU’s toll plan they write:
COSATU’s view is based on its opposition in principle to the commodification of our basic services such as our road network, and hence our opposition to the ‘user-pays’ policy and to e-tolling.
But they do realise that someone has to pay:
We are still in discussion with the African National Congress as to the best funding model to repay Sanral’s debts and finance future road construction and improvement projects. One proposal under discussion is for a 14c a litre increase on the fuel levy, but only as an interim measure to repay Sanral’s current debt.
Now any undergrad public economics student should be able to tell them that government can levy taxes according to the benefit principle (if you get the benefit of the public good you pay) or the ability-to-pay principle (if you can afford to pay, you pay more). The benefit principle is typically more efficient and fair if it is clear that people who use the roads get the benefits and it is easy to identify and bill them. This is the case for etolls. One could argue for the ability to pay principle if you believe that the benefits of better freeways spill over to the economy at large and everyone should chip in. The COSATU statement has something along those lines:
“farmers get their produce to the markets and airports using Gauteng freeways. Business and individual prosperity increases from improved efficiencies in transportation of people and goods through the economic heart of South Africa. This generates more taxes for the country. Equally, road improvements in other parts of the country will help Gauteng…”
Paying according to the ability-to-pay principle is considered fair when the tax rate is progressive – if you earn more, the proportion of tax paid to income, increases. But this is not the case when you add 14c/l increase to the fuel levy. Not only is everyone paying – also those that are not using the Gauteng freeways – the levy is regressive. In other words, 14c/l is a large increase in tax if your income is low and it is a small increase if you income is high.
COSATU’s proposal is placing the burden of Sanral’s debt on poor people all over the country.
If you want fairness, let the people who use the roads pay for it. Exempt public transport and make the tax/payment progressive by letting the car owners/users pay – if you own a car and are driving on Gauteng freeways, you are not “the poor”. But it is true that Gauteng is the heart of the economy, so the rest of us can kick in with some fuel levy-based contribution. The solution is a combination of user charges and public subsidies.