The following was written by Pretoria-based ASFL Executive Board Member Martin van Staden

In a common leap of logic, the average statist often contends that taxation is not merely the State expropriating value from citizens but also an investment! The fallacy goes that any money the State takes is reinvested into the economy anyway, and thus there is no loss to the economy at large. In this essay I rely on proto-Austrian Frédéric Bastiat’s well known essay That Which is Seen, and That Which is Not Seen as well as ordinary common sense to explain why taxation is not such a ‘reinvestment’. The carbon tax has been a contentious topic in South Africa recently, therefore I will use it and the discourse surrounding it to make my point.

On the Terra Firma Academy blog an argument is made in favor of the carbon tax. The author attempts to justify the tax with reference to the good it will apparently do for the economy.

The first argument is that for the carbon tax to work, the State must effectively recycle the revenue by reinvesting it into the economy. The author recognizes that tax causes distortions in the market, but believes the imposition of the carbon tax can be used to reduce other taxes. The second argument is that the carbon tax will create employment. These will mostly be services that companies will need because of the carbon tax, such as carbon accounting and other risk management services to handle their tax liability. Further, companies may create carbon offset projects where they actively reduce emissions (e.g. by building wind turbines pro bono as a means to reduce their liability). The author states that by doing this, companies will be “contributing positively to society”. Lastly, the author argues that the carbon tax will “encourage” the emergence of a green industries.

 The first argument is easily refuted. The author assumes that the South African government has the capacity or will to effectively reinvest collected revenue into the economy. It has been shown ad nauseam that the ANC government is prone to corruption and maladministration of funds. Revenue recycling, to use a cliched expression, “can work in a perfect world”, or in theory.Bastiat puts it well:

“It is nonsense to say that the [government] will [reinvest the tax] to the great profit of [the nation]; the thief would do the same; and so would [the taxed citizen], if he had not been stopped on the road by the extra-legal parasite, nor by the lawful sponger.

Let us accustom ourselves, then, to avoid judging of things by what is seen only, but to judge of them by that which is not seen.”

The economic calculation problem cannot be left unmentioned. Bastiat touches on this in the extract and the author at Terra Firma Academy ignores it entirely. The taxed business has a much better capability to ‘invest’ in the economy. This is because businesses respond to market forces as they happen, whereas the State makes arbitrary decisions based on the ruling party’s electoral platform. The State also simply does not have all the information available to it to appropriately reinvest in the economy – assuming it had bona fide intentions.

The second and third arguments are also based on inadequate logic. These arguments are also made on The Daily Maverick by authors Saliem Fakir and ManishaGulati. They are plainly saying that the State should artificially create a new industry. Industries develop from a demand for particular goods and services. These demands originate from the subjective tastes, preferences and interests of individual consumers. As it stands, there is no demand for carbon accounting and there is no demand for green industries.

Furthermore, think of the job losses that will occur in already existing industries which came about as a result of

market demand. While the State’s manufactured industry in the ‘green economy’ will be the obvious ‘benefit’ of the carbon tax, few will regard the job losses and closures of large producers as a consequence thereof. South Africans have a tendency of ignoring the failures of the State and only complaining when there is a perceived ‘market failure’. An example of this is how mainstream commentators refuse to regard the unemployment problem in South Africa as a result of burdensome State labor intervention.

Bastiat wisely recognizes the fallacy when he writes that public works projects apparently help with reducing unemployment. But the disadvantages are often not seen: the job losses in existing industry, or the lost opportunity for private enterprise where the State monopolizes another industry. He concludes aptly by saying (concerning the positive contribution of artificially created industries):

“As a permanent, general, systematic measure, it is nothing else than a ruinous mystification, an impossibility, which shows a little excited labour which is seen, and bides a great deal of prevented labour which is not seen.”

With reference to the carbon offset projects, I find it disheartening that the authors at the Terra Firma Academy make a common error in economic thought: businesses have a separate ‘corporate social responsibility’. Nicholas Woode-Smith, a Local Coordinator in training, wrote about this earlier this month. Businesses do not exist because a malicious capitalist demon is keeping them existent. They exist because they are satisfying their customers (the public). A polluting factory is not a menace in our society, but a productive contributor which is offering us something we might otherwise not have. Suggesting that companies should take up projects “that [are] unrelated to [their] operations” is illogical. The division of labor doctrine states that shoe factories should make shoes, and environmental conservationists should build wind turbines.

In their concluding paragraph, Fakir and Gulati say that many factors affect the economy, not only taxation, and that it is incorrect to only complain about the tax and not the natural market occurrences. This is problematic reasoning for it treats ordinary market occurrences the same as involuntary, coordinated assaults by the State. In the latter’s case, it is merely a matter of policy which is arbitrarily based on political considerations. With the former, the market responds to the choices of consumers, individually and collectively.

You may have realized I have not addressed the purpose of carbon tax in this article: to conserve the environment and contribute to healthy living. I avoided that for a specific purpose. One would immediately recognize the phrase so often used in action movies involving the United States government: “the United States does not negotiate with terrorists”. According to this logic, I respond in a similar vein. I am unwilling to engage while using the coercive power of the State is on the table. Only when neither of us is using the threat of force, will I be engage on the topic of climate change itself.