The African Colony: Studies in the Reconstruction

The old mining revenue was mainly indirect. A tax on profits was indeed imposed by the late Government in February 1899, but war broke out before there was time to organise its collection. The real burden lay in the dynamite monopoly, which at its worst increased the price of explosives by £2 the case, and at its best by about 30s. The mines required an annual supply of 300,000 cases, which meant an annual charge, beyond the cost of material, of £450,000. The average net profits on the annual production of gold may be put at £6,000,000, which, with a 5 per cent profit tax, would return £300,000 a-year. Had the Boer régime continued, the mining industry would have contributed in the form of imposts something between £600,000 and £750,000 per annum (for a reduction of 10s. in the dynamite charge had been promised on the eve of the war). From the standpoint of the mines the whole sum was an impost, but only the yield from the profit tax would have found its way into the Exchequer.

The present charges on the mining industry consist of the prospectors’ and diggers’ licences, the 10 per cent tax on profits, imposed by Proclamation No. 34 of 1902, and the cost of native passes, which was formerly paid by the native himself, but is now borne by the employer. The mining industry will therefore on its present basis pay from half a million upwards in profit tax, about £120,000 for native passes, and about £50,000 in licences. It is difficult to see how this taxation could be fairly increased. To add, for example, a charge of 20s. per case to explosives would be to tax the means of production, – a fatal heresy, – to keep some of the smaller mines out of the profit-making class, and in the long-run to harm the Exchequer itself. The true policy is not to hamper the earning of profits by excessive charges, but to enlarge by judicious encouragement the area over which profits are made. It is of the first importance that European capital should be attracted to, and not scared away from, the country. Under the present system the Government receipts will advance pari passu with any increase in the prosperity of the mines, and to secure the ultimate gain one may well be satisfied to forego a larger immediate return.

There is a fourth source of revenue from mining enterprise which may be roughly described as windfalls. The Government has a moral right, which no one denies, to profit by new discoveries, and in any case, as a large landowner, it will be interested as an immediate participant. The provisions of the old Gold Law have been so often discussed in print that it is sufficient here to give the briefest sketch of them. Legislation by the late Government on precious minerals began as early as 1858, and continued in a long series of resolutions and counter-resolutions till the somewhat confused position of affairs was simplified and regulated by the famous law, No. 15 of 1898. The basis of this law is to be found in the principle that to the owner belonged the ownership of minerals found under his land, but to the State the right of regulating their disposal. It attempted to give to both owner and State a fair share of the proceeds, while at the same time the prospector and discoverer received a moderate reward for their enterprise. There can be no question about the validity of the three rights; the only dispute is concerned with their relative proportions. Besides the matter of share, there is one other question of great importance – how far it is permissible for an owner to refuse to allow the exploital of minerals under his land.

I take the last question first. Under the old law the owner of private property could prospect without a licence on his own land, and could give authority to any licensed person. If minerals were found, the State President, subject to certain compensation, could throw open the land as a public diggings. State land could be prospected and proclaimed in exactly the same way. But if the owner of private land refused to prospect himself or allow others to prospect, the State could not interfere to compel the exploital of his minerals. Much has been said of the right of the public in the shape of the prospector to go anywhere in his search; but no such right has ever existed or can exist. The whole question is one of policy. It is clearly not the interest of the State to leave the chief source of its wealth unworked; nor in any real sense is it the interest of the private owner. But it would be an intolerable burden to a farmer to be subjected to constant trespass by any prospector who cared to take out a licence. We must, however, clearly distinguish between Crown and private land, so far as the steps towards the discovery of the minerals are concerned. Crown land, under strict conditions, should be free to any licensed prospector; but, as the settlement of Crown land by agricultural tenants is a vital part of Government policy, provision must be made for ample compensation to such a tenant for disturbance caused by prospecting. Such provision should refer not only to unproclaimed or hereafter to be proclaimed Crown land, but should be brought to cover areas such as Barberton, Lydenberg, and the Wood Bush, which have been long working gold-fields. If compensation and security is not provided, some of the most valuable agricultural and pastoral lands in the country will be incapable of white settlement, and their only occupants will be the Kaffir, the coolie, and the bywoner, who have no interest in creating permanent homes. It is undesirable to tie up minerals, but it is equally undesirable to tie up agricultural wealth. People have talked of proclamation as if it were an inviolable contract between the Crown and the public, to which no new conditions could be added. There is neither legal nor historical justification for this view. It is right for the Crown, having given permission to the public to go upon its lands for a particular purpose, to impose from time to time conditions under which the permission may be exercised. On private lands the case is different. No owner of a private farm who is in beneficial occupation of it (when he is not, the land should be treated for this purpose as Crown land) should be compelled to allow prospecting unless he has already himself prospected or given authority to others. To enact otherwise would be to make a freehold title little more than a farce. But in order to prevent a reactionary or indolent owner from tying up valuable minerals for an indefinite time, when there are reasonable grounds for believing that such minerals exist, the Commissioner of Mines should have the power to give notice to the owner that he must prospect or allow others to do so, and, if he still refuses, to issue to the public a small number of prospecting licences on the property. When prospecting has taken place, and, after an investigation by the Government, minerals are found to exist in payable quantities, the area, subject to all rights of compensation, should be proclaimed a public digging.

Under the old law the discoverer, if his discovery were made at least six miles distant from a locality already worked, was entitled to mark off six claims which he could work without payment of licence-moneys. He had also the ordinary public right of pegging off not more than fifty claims in the proclaimed area, and fifty additional claims on payment of reduced licences. The only real reward to the prospector for his trouble and expense was the six free claims – hardly a sufficient inducement to undertake laborious, and often costly, enterprises. The Gold Law Commission recommended that the discoverer should receive one-thirtieth of the proclaimed area, provided that in no case such one-thirtieth exceeded thirty claims. This seems a reasonable but not extravagant honorarium to the pioneer. He would be entitled to the first selection, and would hold his claims free of licence-moneys till they reached the producing stage.

The owner, under the old law, was entitled to reserve a mynpacht, equal to one-tenth of the proclaimed area, for which he paid either 10s. per morgen per annum or 2½ per cent of his gross profits. He was also entitled to mark off a werf or homestead area, on which prospecting was forbidden; and on this, too, he could claim a mynpacht from the State. He was entitled to a certain number of owner’s claims, which could not exceed ten. He was entitled, before proclamation, to grant to other persons a certain number of claims called vergunnings. Finally, he was entitled to share equally with the Government in all licence-moneys on claims, and to receive a share, varying from one-half to three-fourths, of all licence-moneys on stands. This system gave the owner about one-sixth of the whole proclaimed area, – an extravagant share, and one complicated by the curious rights into which it was divided. Such unmeaning complexity must be abolished, and one form of title – claim licences – substituted. Werf and vergunning claims should be done away with, and the owner, as the Commission recommended, be allowed to peg out one-seventh of the proclaimed area, which should take the place of werf, mynpacht, vergunnings, and owner’s claims. The Commission has also recommended that, while the owner should retain half of the proceeds of licences, the Crown should have the right, without consulting him, to remit or reduce the licence-moneys in what appear to be deserving cases.

The State, under the old law, received all licence-moneys on claims and stands situated on State lands, and half the licence-moneys from claims and stands on private lands. It received also certain payments from the owners of mynpachts. This in itself should provide for a considerable revenue. But in addition the Crown should have the right of sale of claims in proved districts, where the ground has a certain value. The former method, in places where pegging was out of the question, such as along the Main Reef, was to hold a claims’ lottery, a method which was neither rational nor lucrative. The sale by auction of claims in proved districts would bring in a large additional revenue and do no injustice to the prospector. But in all places yet unproved the public should be free to peg out claims and try their fortune. It is important, also, to revise the present system of licence-moneys, so as to make the licences small during the prospecting and non-producing period, and raise them when mining actually begins. Under the old law all licences were £1 per claim per month, a payment which bore heavily upon the poor prospector who was still labouring to prove his claim. Prospectors’ licences were issued at 5s. per month on private land and 2s. 6d. on Government land. The Commission recommended the abolition of prospectors’ licences, and the substitution of one general licence to search for minerals, on which a stamp duty of 2s. 6d. per month should be charged. When minerals are found and a public digging has been proclaimed, licence-moneys of 2s. 6d. per claim per month should be paid on Government land, and 5s. on private land till the producing stage is reached. After that date the old licence of £1 would come into force.

The Transvaal Legislature will shortly be called upon to consider a new Gold Law based on the report of the Commission, of which I have sketched the chief features. Of almost equal importance, in the light of recent discoveries, is the new Diamond Law, where substantially the same questions of principle are involved. Owner, discoverer, and State should have a fair share of profit – but especially the State. We are none too well off in the ordinary course of things to be able to afford to neglect our windfalls. A serious and permanent increase of revenue can come only from a gradual increase of producing activity; but, apart from permanent needs, many occasions will arise for capital expenditure in reproductive works which are vital to progress. A windfall is a development loan without guarantee or interest or sinking fund to burden the mind of the Exchequer.

The other direct taxes are so few and unimportant that they may safely be neglected. But it is necessary to face the question of adjustment and new taxation, for the time may come when it may be expedient to lower many of the existing duties and to revise thoroughly railway rates, and it is desirable to have alternative proposals to meet the decline of revenue which will follow. It may be desirable, for instance, to abolish wholly the present charge on dynamite, as it most certainly will be necessary to lower still further the cost of transit on the railways. But new taxation must be imposed with the greatest caution. The present population of the Transvaal pays in indirect taxes £10 a-head as against £2 at home; the field for direct taxation is therefore strictly circumscribed. To certain taxes the road is barred. A land tax, however light, would bear heavily upon the impoverished rural districts, and in any case is impossible under the Terms of Surrender. An income tax would make life unbearable if the limit of exemption were low, and if the limit were high the yield would be inconsiderable. A general profit tax on the earnings of both companies and individuals may become feasible in time, but we must first await the return of normal conditions of life. One way may be found in increased native taxation, a matter which, as it is bound up with other questions of native policy, is discussed in another chapter. But the object of all new taxation must be to strike at the untaxed and unproductive elements in society, for reasons quite as much political as economic. On this ground two taxes seem just and desirable, though there are certain obvious difficulties to be surmounted before they can be levied. The first is a tax upon unoccupied lands, a quite possible and equitable tax which would meet with little real opposition. Land companies in the Transvaal alone possess some 12 million acres, the bulk of which has been bought for supposed mineral values. Not 10 per cent of the land is occupied, and nearly 50 per cent is capable of occupation of some kind. Quite apart from revenue considerations, a tax which would compel settlement, or, failing that, would drive some of the more obstinate companies to put good land in the market, would be sound policy. What applies to the companies would apply to the private landowner who has his half-dozen farms, and lives in a corner of one of them. Latifundia bid fair to be among the curses of the land, unless proper measures are taken to check them in time; and if this is done, the land troubles of the Australian colonies and their confiscatory legislation will be saved to South Africa. The machinery would be simple. A permanent commission would have to be established (the judicial committee of the Central Land Board, provided for in the Settler’s Ordinance, could do the work). Each owner of unoccupied land would be summoned before it to state his case. He might show that three-fourths of his land was at the moment incapable of occupation, in which case he would only be assessed on the remainder. The tax might be an ad valorem tax of 2 or 3 per cent. A day might be fixed, say eighteen months from assessment, when the tax would come into operation. In case owners proved refractory and preferred to pay the tax, it might be increased on a sliding scale till settlement became compulsory. There would be no hardship to company or individual, since only land for which a white occupier could be found would be assessable for the purpose. The second tax is of equal importance but far greater complexity. The most difficult person to reach in taxation is the holder for the rise, the speculator who is nothing else, the great class which toils and spins not and grows fat on the energy of others. The basis of his activity is the quotation of shares, and a tax to affect him must be in relation to such market values. You cannot introduce a too cumbrous machinery without acting in restraint of legitimate trade, quite apart from the fact that most of the business is done with bearer shares which pass through fifty hands before registration. But it might be possible – it is a problem for a revenue expert to decide – to affect this class indirectly and curtail its activity by a tax on the profits of companies based on the average quotation for the preceding year. At the best it would be only a half measure, for it would be limited to dividend-paying companies, and the energies of the middleman are chiefly exercised on companies whose profits are still wholly speculative. But with all deductions there seems to be a chance of revenue in such a tax, and a certain general economic value. The tax, again, would be limited to new issues, for in the case of old issues, even when the shares stand at 1000 per cent premium, a high dividend may represent a very moderate dividend on the capital of the investor who bought in when shares were high. If the dividend of a new issue justified a high quotation, the quotation would be high in spite of the tax, but the existence of the tax would tend to keep down the speculative quotation to some reasonable relation to former dividends. If dividends declined, and the quotation fell, the tax would go automatically out of existence. Such a tax, if possible, would not yield in normal years a great revenue, but it would have certain salutary and permanent effects. It would touch companies only in a high state of prosperity. It would indirectly touch the man who buys not for dividends but to realise by taking away in some part the basis of his speculations. It would exercise a steadying influence upon the market, and prevent, at least in one class of security, fictitious rises. But as a means of revenue its position would be really that of a windfall, for it would enable the Crown to profit largely out of any period of great financial excitement. A boom, so eagerly desired by all but in many of its results so maleficent, might be delayed by its agency; and if it came, as no doubt it would in spite of any ingenious taxation, and share values became blindly inflated irrespective of past or present dividends, the Government would perform that rarest of feats, and derive an honest profit from the vices of the multitude.

The Transvaal, till the other day, was the only important South African state not included in the Customs Union. Its customs law was No. 4 of 1894, amended by Ordinance 22 of 1902. The basis was an ad valorem tax of 7½ per cent on all goods brought across the border, with an addition of 20 per cent to the valuation price for the purpose of the tax in the case of goods directly imported from over-sea. The purpose of this provision is obvious, since to goods bought at the coast the cost of over-sea freightage and handling is added in reaching the price on which the tax is assessed. But to this general duty there were two important exceptions. There was a lengthy free list, which included, in addition to goods imported for Government use, all live stock, books, tree, flower, and vegetable seeds and plants, tools and effects of immigrant mechanics, fencing material, mining and agricultural machinery, cement, and unmanufactured woods. There was also a list on which, in addition to the general 7½ per cent, special duties were charged. Beer paid 3s. per gallon, dynamite 9d. per pound, gunpowder 6d. per pound, spirits from 14s. to £1 per imperial gallon, manufactured tobacco 3s. per pound, leaf-tobacco 2s. per pound (when brought from over-sea), wine from 4s. to 12s. 6d. per gallon. The tariff was therefore moderately protectionist. Most articles necessary for the great industries were free; articles of common use were subject only to the ad valorem duty; while articles of luxury, and especially all fermented liquors, were subject to a fair but not excessive special tax.

The difficulty was that the tariff was not a fair guide to the real taxation of imports. The Transvaal has no seacoast; all her imports have to be landed at the ports of other colonies or states, and carried to her borders by alien railways. Moreover, all the seaboard colonies, as well as the Orange River Colony, were banded together in a Customs Union, from which she was excluded. A tariff hostility was therefore smouldering on, which gave acute annoyance to the Transvaal importer. I will take two instances of purely predatory imposts. The coast colonies levied a so-called transit due of 3 per cent on dutiable articles for the Transvaal, a due which was the same in principle as the levies which the barons of the Rhine used to make from the harmless merchants passing through their borders. Again, in the case of the Orange River Colony, the only inland colony in the old Customs Union, the duties were collected at the coast ports, and a collecting charge was made, which was simply another form of the transit due. At one time the charge was as high as 25 per cent of the duties collected; but on the petition of the Orange River Colony it was afterwards reduced to 15 per cent. How far such a rate was from representing the real cost of collection is shown by the fact that the Transvaal duties were collected by the coast colonies from the occupation of Pretoria to the end of 1901 at a charge of only 2½ per cent.

The Transvaal had thus a tariff in itself reasonable, but she was embarrassed by her isolation. It was obviously desirable that she should enter into the Customs Union, which would then comprise the whole of South Africa, for if federation is ever to become a serious policy it is well to begin by throwing down economic barriers. But economics have an awkward way of overriding all other considerations, and the entrance of the Transvaal into the Union could only be a matter of hard business – give and take on both sides. The interest of the two parties was on this matter far apart. The coast colonies are agricultural and pastoral, and their ports are forwarding depots. They are frankly protectionist, and their customs have always been their chief source of revenue. The Transvaal is industrial, and for the present a free-trader; she must have cheap food, cheap raw material, cheap necessaries. While at the moment customs form the largest item in her revenue, it does not overshadow all others, and in time it is probable that it will sink to a second place. The question was, therefore, What of her present tariff would the Transvaal relinquish to meet the wishes of the Union, and what compensating advantages could she expect from her membership?

The Bloemfontein Conference of March 1903 prepared a Customs Convention, which has since been ratified by the several states, and the old Customs Union has been amended and extended to include the whole of British South Africa. How far has this act improved the economic position of the Transvaal? In the first place, there is one solid gain, the abolition of the transit dues, estimated at between £250,000 and £300,000 per annum. There is, too, a gain in the mere fact of union, and the freedom which it gives from the incessant bickerings of conflicting tariffs. Since her duties are collected by the coast colonies at the moderate charge of 5 per cent, a saving may also be effected by the reduction of the customs establishment on her borders. The benefit which she has conferred in return is the opening of her markets without restraint to the products of British South Africa, an opening which should amply repay the coast colonies for the reduction in the protective tariff from over-sea. The actual tariff charges are in the nature of an elaborate compromise. To take first the case of the simple food-stuffs. In 1898, under the old Transvaal tariff, imported flour paid in duty £26,955, and imported mealies £16,290. Under the old Union tariff they would have paid respectively £114,068 and £69,332 – a difference of over 400 per cent. The old Union rate was 2s. per 100 lb. for grain and 4s. 6d. per 100 lb. for flour, while the old Transvaal rate was an ad valorem duty of about 9 per cent. It was impossible that either party could accept the other’s rate, so the present solution of 1s. for grain and 2s. for flour may be taken as a satisfactory compromise, which an industrial country could support. It must be further remembered that all food-stuffs produced elsewhere in South Africa enter free, and that the cost of bread under the new system will be if anything reduced. Article XV. of the Convention gives the Transvaal a further power in times of scarcity to suspend the duty on food-stuffs altogether, and give a bonus to imports of the same class produced in the neighbouring colonies. The ordinary manufactured article, which in a non-manufacturing country plays as large a part in the cost of living as bread, is also reduced for the purchaser. It pays an ad valorem duty of 10 per cent, which at first sight seems higher than the old rate of 7½, which with other charges worked out in practice at about 9. But 2½ per cent must be deducted on account of the 25 per cent preferential rate for British goods, and with the abolition of the transit dues the actual duty will work out at between 7 and 8 per cent. Raw material and the necessaries of industry remain much where they were under the old tariff, which was highly favourable to them; but the charge on dynamite has been reduced from 9d. a-pound to 1½d., which is a reduction of over 30s. on the 50-lb. case.