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CHAPTER IV.

COLONIAL TARIFF POLICIES AND THE POSITION OF

THE TWO REPUBLICS.

A. Tariff Policy of the Cape Colony after 1855.

The Cape had always to rely on its customs as making out the lion's share of its revenue. But indirect taxation is never a sure source of revenue, due to the fact, that very often, in times of war for instance, or in times of trade depressions, or when the duties are considerably increased, there may result a decrease in revenue. A cardinal principle of taxation should be elasticity. “The source from which the tax is derived must be of a nature that an increase of the rate will always mean an increase of the yield.” (1). This is not usually the case when duties are raised, unless the consumption of the articles on which the duties are raised be very inelastic, for example a commodity like sugar. The elasticity of England's revenue is due to the system of direct taxation employed there. Over 70 per cent. of England's revenue is raised by direct taxation. (2). However, in the case of sparsely settled communities like the Cape, the advantages of indirect taxation are considerable. It is the most convenient method of taxation under such conditions. Customs duties are the most remunerative of indirect taxes, and are not severely felt by the people. As late as 1909 Professor Fremantle wrote that in South Africa, perhaps more so than elsewhere, sound finance was impeded “by men whose care was their personal prosperity and who endeavoured to secure the fullest opportunity for carrying out their purpose in life without regard to the interests of the future.” He continues: “It is vaguely recognised that a large part of the revenue is derived from customs and that direct taxation is generally regarded in South Africa as something of a novelty. But these things

1. Seligman: E. R. A. Essays in Taxation, p. 76 (1919 edition, 2. See Statesman's Year-Book for 1917, for example, pp. 43 to 44.. cannot be understood without reference to one or two facts of history:

1. There has never been an opportunity of subjecting the customs tariff to effective criticism in the Cape parliament, where alone it might be thoroughly over-hauled.

2. Until the discovery of the diamonds (1867) direct taxation, as now understood, was impossible, for communications were difficult and slow and such wealth as there was, was very widely diffused.” (1).

On April 29, 1864, the customs duties were raised for revenue purposes. All articles subject to ad valorem rates were now subjected to an ad valorem rate of 10 per cent. (2). Later on, Sir Philip Wodehouse, the Governor of the Colony, complained in his report of November 29, 1869, to England, that an increase in the customs duties had been proposed to meet the financial deficit, but that this was rejected by the Cape Legislative Council as a very objectionable measure. (3).

However, from now on the Cape Colony gradually kept on increasing its customs duties, and although the tariff was never enacted with the distinct purpose of protecting her industries, it was almost impossible to enact a tariff with such high import duties on manufactured goods without at the same time affording protection to certain industries. In the tariff of 1870 there are no distinct protective tendencies to be traced, but the duties continued to grow until by 1892 it contained revenue duties which were high enough for protective purposes. (4).

Another common way of favouring certain industries is by exempting some goods from the general tariff provisions, for example the free entry of machinery into the West Indies for the making of colonial products. Similarly in the tariff in force at the Cape in 1870 we find, that although framed for revenue purposes only, it attempted to encourage the farming industry by allowing importation free of duty of agricultural machinery, manures, seeds, flowers of sulphur and staves, — the latter two for the wine industry. . In 1872 Responsible Government was granted to the Cape, and with it came greater financial freedom. She did not, however, make use of her powers in the same way as did Canada

1. H. E. S. Fremantle: The New Nation, pp. 153, 165 and 166. 2. See Theal: History of South Africa since 1795, Vol. 5, p. 35. 3. British Parliamentary Papers for 1870, Volume 49, p. 32.

4. Cf. C. J. Fuchs: The Trade Policy of Great Britain, Chapter on the Cape.

on the matter of the noticed the

when it was granted her. (1). Manufactures were slow to develop at the Cape. The two main industries were of the extractive type, namely mining and agriculture. The “protection interests” developed out of the tariff to a great extent. It was only at the beginning of the present century that loud cries for the protection of certain industries were heard.

However, it was at this time that a new power made itself felt in the arena of South African politics in the person of J. H. Hofmeyr. Because he was such a powerful factor in South African politics for the next quarter of a century, his opinion might be noticed here. “To him fiscal policy was no mere matter of theory, but something which depended entirely on the circumstances of each individual country.” (2). He was in favour of agricultural protection as he looked upon agriculture as the backbone of the country.

Mr. Hofmeyr had frequently discussed the subject of protection in the “Zuid Afrikaan" of which he was editor up to the end of 1883. In the session of the Cape Parliament for 1883, it was decided to raise the customs duties due to the defeat of the Government's proposals for a house tax. This aroused the public interest in protection, although the matter had been undertaken primarily for revenue, and it became one of the issues of the general election. On June 11 in the session of 1884 Mr. Douglass, the representative of Grahamstown in the Cape Parliament, moved a resolution in favour of a protective duty on some dozen articles. “The question of protection was one, which had been prominently before the public notice for some time. Here, as so often, the Bond (the party of Mr. Hofmeyr] was in the van, for at the Congress [of the party) held in Cradock, in 1882, a resolution was passed in favour of some form of protection for the industry of agriculture." (3). Mr. Hofmeyr supported Mr. Douglass's motion and said inter alia, that “personally he was neither a Protectionist nor a Free Trader. He wished to be guided by expediency which he thought should be the principle of

had be the issue Mr. Dou

1. See Porritt: Sixty Years of Protection in Canada, p. 188. In 1846 Canada got her fiscal freedom and in 1858 and 1859 she enacted tariffs with the definite purpose of protecting Canadian industries against British and American competition. When remonstrances were sent from London to this policy, Galt, who was then Finance Minister in Canada, "bluntly told the Colonial Office that Canada in her tariff legislation intended to act as she deemed best for her own interests."

2. J. H. Hofmeyr: The Life of J. H. Hofmeyr, p. 265.
3. J. H. Hofmeyr: The Life of J. H. Hofmeyr, p. 264.

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the Colony. He was not in favour of Protection for Protection's sake.” The Government regarded this as a motion of no confidence, and an amendment led to an increase of duties, but the question of free trade or protection was left out. (1).

Thus the duties were gradually raised — at first to 10 per cent. ad valorem in 1864, then in 1884 to 111 per cent. ad valorem, and as regards several articles to 15 per cent. ad valorem. This latter duty was later reduced to 12 per cent. ad valorem, and in some cases to 10 per cent. In the tariff of 1889 unenumerated articles paid 12 per cent. ad valorem.(2).

An industry which early developed at the Cape under these high revenue duties was the cart- and waggon-building industry. As early as 1885 the duty on the importation of carts and waggons was 20 per cent. ad valorem, and this industry has been protected ever since — only the duties have been raised. It was likewise easy for other industries to grow up under the high duties of the Cape revenue tariff. There was no way out of it. A real tariff-for-revenue-only is one imposed upon articles which cannot be produced in the country imposing the tariff. England's list of chief dutiable articles for the year ending March 31, 1912, consisted of tea, cocoa, coffee, sugar, chicory, tobacco, spirits, wine, motor spirits, and some other articles which cannot be produced in England at an advantage, or can hardly be so produced. Thus by raising the tariff in South Africa, there was naturally afforded protection to some industries, because few articles taxed under it could not be produced in South Africa.

Fuchs thinks that the trade of the Colony decreased as a result of this steadily increasing protective tendency in her tariffs. To sụpport his statement he calculates that the per capita foreign trade of the Colony shows a decline from 1860 to 1890:

1860, £18 4s. ; 1870, £8 8s.; 1880, £22 Os.; 1890, £13 6s. (3).

This downward trend of the trade may have been due in part to other causes, but there can be no doubt of the fact that the high customs duties helped to bring it about. However, the crisis of 1881 and 1890 explain the decreased

1. J. H. Hofmeyr: The Life of J. H. Hofmeyr, pp. 265 — 266.

One of the principles of Mr. Hofmeyr's party was "that agriculture, stock-farming, commerce and industries be aided by all legislative means... by a circumspect and judicially-applied system of protection.” Ibid., p. 653.

2. See Return of Colonial Tariffs for 1891, Cd. 6402, p. 22.
3. Trade Policy of Great Britain, pp. 281 — 282.

iesports. (1)." buting factor vel from 1873

imports, while the general decline in price-level from 1873 to 1896, might have been a contributing factor, too, to this decreased value of imports. (1). The idea of independence of all other countries for manufactured articles had surely by this time taken hold of the Cape. In Canada it began as early as 1876, when the “national policy” was started there.

It therefore appears, that when England stopped her discriminating policy in 1846, — on account of the fact that she was the leading manufacturing nation of the world, and had to have markets for her goods, and on account of the fact that she was a powerful carrying nation and had to stop discriminating in favour of her own flag, — she expected the colonies to do likewise. In 1852 the Cape Colony received its first Parliament, and in 1855, in conformity with the commercial policy of England at the time, it received the simplest tariff it ever had under British rule. It was a tariff-forrevenue-only and void of any discriminations. From then on, that is, after the Colony had obtained fiscal autonomy, the tariff fluctuated almost inversely with the prosperity of the Colony — when it was low the tariff was raised, and when it was high, the tariff was either lowered or left unaltered. No manufactures were protected because there were hardly any. Manufactures were very slow to develop in South Africa, because the people were in general uninterested because of the opportunities which they saw in farming. Moreover, with

1. The value of Cape Colonial imports in 1860 amounted to 2,665,902 pounds sterling; in 1880 it amounted to 7,662,858 pounds sterling, while in 1886 the value of the imports stood at 3,799,261 pounds sterling, and in 1890 imports had again jumped to 9,366,446 pounds sterling. The exceptional decline from 1882 to 1886 cannot be explained by high duties only. For the same period (1880 – 1886) the figures for Natal show a considerable decline as well, and the duties in Natal were very much lower than those of the Cape as will be pointed out later. It should also be remembered that the country was passing through a severe crisis in 1881, whose effects lasted for some five years. “Between 1881 and 1886 the total assets of the Cape Colony banks declined from 183 to 8 millions — a contraction of 54 per cent. in 5 years. During the same period, direct facilities to the public... fell from 103 to 3 millions — a contraction of 71 per cent. Similarly there were reductions of 50 per cent. in the note circulation, 59 per cent. in the deposits, 50 per cent. in the paid up capital, and 66 per cent. in the reserve funds.” Several local banks succumbed. From 1886 to 1890 there was a wave of prosperity again followed by a very sharp crisis in 1890. See D. P. Morgan: Bankers' Magazine (London) Volume 96 for 1913, p. 329.

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