Feels Punished for Alerting World to New Variant

By Jacques Monod, project leader of Climate Justice at The Institute for Environmental Studies.

November 2017 was an extraordinary moment in the history of South Africa. But those watching the telecast of the Olympic Games in Rio de Janeiro could hardly know it. Under the leadership of the National Treasury and the national department of mineral resources, the Minister of Natural Resources ordered all South African banks to open accounts for a new type of company, Affected Mineral Assets. The account-holders were to pay for the cost of mining and dealing with these assets in South Africa, whose profits will eventually end up back in the Global South (GSW). They would receive a once-in-a-lifetime remission in income taxes in return, allowing them to keep most of their money at home.

Affected Mineral Assets is not like a mining corporation, at least in the sense of an extractive company. Its main function is service work, removing the waste from the many old-mining sites in South Africa and sorting it into piles in the open ground. As evidence of its use of environmentally sound, sustainable practices, the company also sells leaves to householders around the country.

When this innovation was first announced in November 2017, the world was shocked at the idea of abandoning the “earned income tax deduction” (METD) system that had always been applied to income from mining. An effective METD allows mining companies to avoid paying taxes by deducting the minerals extraction from the taxable amount of the income they receive. It is also the mechanism by which, in the absence of adequate tax revenue from mining, the state pays out public sector wage settlements.

From the 1980s, whenever a mining company ran into difficulty, the government routinely found it necessary to replenish the mining company’s coffers with public sector support in order to allow it to remain in business. Yet it was only when the South African government began to reduce the importance of mining to economic and social development that this form of avoidance started to evolve. There were other reasons to adopt METD, of course: For one thing, mining has always been highly politicised and fiercely contested, due to South Africa’s history of apartheid. And, in some small number of cases, mining companies have had reason to be accused of environmental negligence. But these kinds of accusations have in the past been entirely ignored by those who have relied on an independent regulatory and tax agency to identify and penalise infringements.

By imposing a METD on mining, the government of South Africa has almost certainly extended the paradoxical tendency of society to suffer when its structures fail. One could give an example of the Dutch disease. When the Netherlands developed mining, a large and sustained GDP growth was encouraged, and tens of thousands of jobs were created in manufacturing and the service sector. But subsequent industries failed because mining created a surplus of metals that could not be quickly absorbed by the expanding domestic market. To counteract this economic distortion, the central government established a policy of exchange controls to ensure that the benefits of growth went to the bulk of the population. But exchange controls were gradually eroded by a subtle systemic degradation of the liberal system. Suddenly the Netherlands, which had in effect become a land of imported goods, could no longer import back the (western) companies from which it had consumed. The capital had to be sent elsewhere, to the state, and that became the basis for the grand anti-Dutch disease scheme.

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