Taxpayers expected to pay more

Johannesburg - It could cost South African taxpayers millions of rands over the next few years to save neighbouring countries - Lesotho and Swaziland in particular - from economic collapse.

South Africa will have to help finance these countries' budgets, since it seems probable that the country will have to assume responsibility for the deficit in the revenue pool of the Southern African Customs Union (Sacu), to which Botswana, Lesotho, Namibia and Swaziland also belong.

This union earns its revenue from regional import and excise duties for the region, which are subsequently divided among member states.

The Sacu's income has, however, been shrinking owing to reduced economic activity in South Africa in particular. A R9bn shortfall has already been registered for the year to end-March 2009.

An estimate is done every year as to what the Sacu revenue is expected to be and the South African Treasury then makes quarterly payments to member states based on this estimate.

Owing to the economic downturn, Sacu income in the past financial year has been considerably less than estimated and disbursed.

In terms of the agreement, the shortfall must then be recovered from member states - any surpluses are naturally also divided among them - but it seems unlikely that South Africa can collect the R5.6bn Botswana, Lesotho, Namibia and Swaziland owe the pool.

These countries have already been severely impacted by the economic crisis, which has brought their government revenues under tremendous pressure.

Botswana, the richest of these members which, under normal circumstances, is least dependent on income from Sacu owing to its income from diamonds, will probably see its diamond exports tumble an estimated 55% this year.

The income of Lesotho and Swaziland, which fund more than 60% of their state budgets from Sacu transfers, could decline by 50% next year if the shortfall is recovered and the decline in Sacu income taken into account, said Matthew Stern, director of consultancy group Development Network Africa (DNAfrica).

"This would cause a systemic shock which Lesotho and Swaziland could not handle."

Further shortfalls in the SACU income pool are expected for the next two years.

According to the South African Treasury, budgeted payments to the Botswana, Lesotho, Namibia and Swaziland for the next two years amount to R27.9bn and R26.2bn respectively, but it is improbable that sufficient tax revenue can be collected to fund these payments.

Customs revenue in the year to end-March 2009 was already 20% lower than in the previous corresponding period. Imports through the Sacu member states, which provide the lion's share of Sacu income, were almost 46% lower in the first five months of 2009 than in the corresponding period in 2008.

An official of Sacu confirmed that no decision had yet been taken on how to tackle the problems of the shortfall and declining income. A meeting in this regard will take place at the end of this year.

'Very serious issues'

The Treasury notes that the Sacu ministers of finance will get together in August or September, and that no decision has been taken as to whether financial assistance will be given to members.

Mmatlou Kalaba, an economist at Trade & Industrial Policy Strategies (Tips), said the deficit would raise "very serious issues" about South Africa's payments to Sacu.

DNAfrica estimates that 70% of the monies that countries earn from the Sacu pool are simply a transfer or form of assistance from South Africa.

"I think it has long frustrated South Africa to see how its money is being used for the purchase of new cars for the King of Swaziland, and this crisis could possibly ultimately give the government an opportunity to attach conditions to the payments," speculates another economist.

South Africa will however not be able to shut off the taps - especially those to Swaziland en Lesotho.

"If these countries should get into serious trouble, borders will no doubt be overrun. If you look at Zimbabwe - forget the debate as to what we could have or should have done to help - we are paying for that on a massive scale.

"I hope we have learnt our lesson and that we will use every means available to prevent a similar situation with the Sacu," said Kalaba.