This is done in terms of my understanding of the important role of the agricultural sector in any society and more so the importance of the sector for the economic well being and growth of rural towns. I will apply my understanding of agricultural economic principles in the calculation of returns to agricultural land to judge certain of the submissions and I will also use my knowledge of the strategic plan of South African agriculture to present proposals that could help the Committee in its deliberations.

At the outset it is worth mentioning that my interpretation of the various submissions is that the majority of them are constructive, informative and very useful to the debates surrounding this bill. A minority is very negative and rejected the idea of levying property tax on farmland outright and is not very constructive in debating the shortcomings of the bill. However, there are a number of important suggestions put forward by the various stakeholders that should definitely be considered by the Committee. I will put forward the reasons for my position later. But first I summarise the main points of the various submissions under the following headings.

It is argued that a tax on agricultural land (which is the most important production resource in farming) will lead to a considerable drop in the value of agricultural land, which could affect the collateral base of many farms. This will then limit the ability of farmers to obtain production credit, which could then affect levels of production with a potential range of negative consequences such as lower employment, lower foreign exchange earnings, etc. It is also argued that a tax on agricultural land would lead to reduced investment in improvements on land which again negatively influences productive capacity and thus land values.

Comment:

All the submissions point to ambiguity of the definition of the term 'improved value' in relation to farmland. The submissions pointed to the complexities in valuing farmland. The improved value of agricultural land typically includes the value of crops, vineyards, orchards, which value is often more than the value of the land on which it is grown. The market value of land includes all these aspects but you cannot include this for the purpose of a land tax since the sales of crops, fruits, etc are a~ taxed through income or company tax. This implies that it cannot be included in the value of the property for the purpose of property rates. It is therefore argued by most submissions that this should explicitly be mentioned in the bill that these items be excluded from the valuation base.

Many of the submissions made comments about the level of taxation. In some municipalities rates of 2% of the value of the rateable property are mentioned and the negative effect of such a tax is well illustrated in many of the submissions. A comparison of land taxes in other countries is contained in the Kwanalu consultant report, which is very useful. The basic argument here is that our main trading partners do not tax agricultural land or tax it at very low levels. In addition many of the rich nations subsidise agriculture at extreme levels. Developing countries typically tax agriculture, which negatively influence the ability of these countries to compete internationally.

Many stakeholders pointed to the large tax burden farmers already face and how that is going to be increased by the introduction of property rates on farmland. They list current taxes such as higher water tariffs; tollgates; RSC levies; estate duty; tax on diesel; VAT, etc. They then compare this with other countries where agriculture is treated very favourably with limited taxation and in fact large-scale subsidisation. This situation plus other factors increasing production costs namely minimum wages, sharp rises in prices of inputs and a new pricing dispensation for electricity hamper South Africa agriculture's ability to compete internationally. High production costs (including high taxes) affect your ability to compete with other exporters where they enjoy a much favourable treatment from government.

Most of the submissions argue that municipalities deliver virtually no services to the majority of inhabitants on farmland. Farmers sometimes provide many of the services themselves, e.g. sewerage, road infrastructure, water, refuge removal, social services, clinics, and even schools. Society is not rewarding farmers for these functions. In addition stakeholders argue that the 38 functions to be provided by municipalities are largely to the benefit of urban dwellers.

Virtually all the submissions make mention of the Strategic Plan for South African Agriculture and how the introduction of property rates on agricultural land will compromise the desired outcomes of the strategic plan. Particular mention is made of how this bill will affect the second core strategy namely: "Global competitiveness and profitability".

In this section I put forward additional reasons why careful consideration should be given when decisions about taxing agricultural land is made. In a sense these arguments provide additional understanding for the points made by the different stakeholders.

The international debate about the role of agriculture in society has moved into interesting terrain amongst policy makers in Europe, USA and Japan. Policy makers and governments in these countries now justify their favourable treatment of agriculture on the argument that agriculture is providing additional functions to society apart from the traditional roles of producing food, creating employment and earning foreign exchange. This new debate is currently being extended to developing countries in a project lead by the Food and Agricultural Organisation of the United Nations (FAO). I am part of this project and lead the South African case study and already we have successfully identified these other roles of agriculture. These additional roles include:

The argument here is that society is getting all of this for free and now society wants to tax agriculture further. In actual fact society should pay for these services agriculture provide - this is why European governments subsidise their farmers so that the society could enjoy the 'externalities' provided by agriculture. If we add this argument to the limited benefits farmers would enjoy from the services provided by municipalities it does make a compelling case for a differential treatment of agricultural land in a new property rates dispensation. To be in line with our major trading partners and competitors one could argue for complete exemption, but there might be some merit in levying a marginal tax rate on agricultural land of around 0.1% on the improved value of land (excluding crops, vineyards, orchards). Very few of the submissions totally argued against the introduction of property taxes and therefore one can buy a lot of good will by fixing a much lower rate for agricultural land. On the other hand it is most likely that the cost of value agricultural land would far exceed the potential income from tax on agricultural land. Then the option of total exemption might be the most logical choice.

My overall impression is that the submissions were all fairly honest and provided useful suggestions on how agriculture land should be treated in the Property Rates Bill. I have also provided additional arguments why we need to think differently about agriculture land - one of our nation's very scarce resources. Any rate of taxation of agricultural land will have so many complications that it is most likely that the income earned in the process will not cover the total cost of valuing the land and collecting the revenue. It is only at 4% or higher that it will make economic sense and then all profits or returns to land are taxed away, which will in effect mean that nobody wants to farm. The consequences in terms of the poverty and food security agenda's of government will be too ghastly to contemplate.