Abstract

The Cape Colony was the most advanced colonial state in Southern Africa in the 19th century. It attained a non-racial franchise in 1853, and its fiscal institutions were good by African standards. Yet there is a puzzle that has not been fully explored. By 1909, the Cape had accumulated high debt levels, and it was experiencing huge budget deficits. What had gone wrong fiscally for a setter colony with, supposedly, ‘good institutions’? This paper examines the interface between colonial fiscal institutions and commercial interests at the Cape, in comparative perspective. Using public revenue, expenditure and debt statistics as well as other qualitative evidence from budget speeches, parliamentary Acts and colonial records, the paper investigates how the Cape’s fiscal institutions evolved leading to the financial challenges experienced just before unification in 1910. The study’s preliminary finding is that after the discovery of diamonds, the growing economy availed more ‘tax handles’ which were not exploited. This had negative ramifications on fiscal capacity building in the long run. The tax structure of the colony did not develop as elites in the mining sector resisted paying taxes or royalties to the state. Public expenditure priorities were distorted towards private interests, in the same mining sector. Rather than being the main source of government revenues and a basis for nation-level development, diamonds became a trap. The comparative angle of the study is being developed and will be incorporated fully. The purpose is to go beyond the Cape/Africa-specific arguments and trace how fiscal systems developed in other British colonies of comparable state-level institutions.