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Neal Westgate has raised some interesting aspects in the development of mining over the last fifty years. It is somewhat surprising to read that labour still makes up between 55 to 60 percent of the mine's costs.

The strengthening of the Rand / Dollar exchange rate has reduced the Rand price of gold and, according to many reports, has threatened labour with retrenchment and will force the mines to abandon large quantities of low grade ore. This lower grade ore may be lost forever, reducing the country's foreign exchange earnings.

Since mining began, engineers have used their initiative to improve machinery, technology and mining methods but stop short of examining the cost of labour; other than Trades Unions negotiations. Why have engineers neglected to challenge the tax structure that adds to the cost of labour and has its largest negative impact at the margin of production? At the same time this tax system bears lightly on the higher grade mines as is evidenced by the high share prices compared to their face value.

Economists are more concerned with the bottom line profits than with understanding the effects of taxation on employment. Seldom does anyone comment on the effect of taxation at the margin of production, be it mining, industry, business or agriculture. The margin is where the value of production is only just equal to the cost of that production. As an example, Value Added Tax (VAT) adds 14% to the cost of labour since salaries and wages had to be increased to compensate for VAT paid on their purchases. In the absence of VAT, 14% more labour could be employed for the same wage bill! Alternatively the cost of production could be reduced by 14% of 55% to 60% of costs, i.e. approximately 8% when considering the mining example.

Perhaps Neal Westgate, with all the statistics available to him, could calculate and answer some of the following questions: How much extra lower grade gold could be recovered with this 8% saving? How much more labour could be profitably employed with this saving? Would not the same apply to agriculture and industry? To what extent would this reduce prices at home and also add to exports?

Look around and see what mines have closed down since VAT or GST was introduced and how much labour has been retrenched. How many Border Industries have shut their doors and to where has the unemployed labour migrated? How many farms lie idle and how much employable labour sits around in poverty without even access to land where they could become self-employed?

Since economists, politicians and government are either unwilling or unable to tackle the major issue of unemployment at the margin of production, it is high time that engineers applied their keen intellect to understanding the problem. It is an extremely interesting study. There are over 800 million people worldwide living in abject poverty! Over 40% of labour in RSA is unemployed. Is this not a greater challenge than mechanical efficiency?

Part of the solution lies in the teachings of the classical economists that have been totally neglected by most modern economists and the state of the world is proof of the modern blindness. Adam Smith said: Do not tax labour; we do tax it heavily. Do not tax interest; we do. Do not tax the products of labour; again we do. But DO collect the Rent of land (As defined by David Ricardo) This is the natural source of revenue as it is directly proportional to the advantages enjoyed by the occupation of land or access to mineral reserves.

The only place where RSA has in any way adhered to Adam Smith's teachings has been in municipal Site Value Rating, mainly in the former Transvaal and OFS. Even this has now been partially destroyed by the new Property Rates Bill 2004 that changes from rating land only to rating improved value. Thus the rates on land will be reduced by about 60% and the same amount transferred to improvements. Whereas improvements were free from rates in most of RSA, they will in future be rated. This will inevitably slow down building construction and increase unemployment.

Is the overall system working efficiently? You be the judge!


Godfrey Dunkley is a Past President Inst. of Certificated Mechanical Electrical Engineers (1980)