The price South Africans pay for fuel goes up tonight. The payment holiday on the fuel levy, a temporary measure that was implemented to offer relief from the upward pressure on the fuel price, was extended a little longer. According to all indications, though, the hike is still expected to be a severe blow for consumers; and it will be even worse when the concession is terminated.
The fuel price can roughly be divided into two equal parts: The basic fuel price where the price of crude oil and the rand/dollar exchange rate play the most important role. And then there is the cost of distribution and trade, as well as a general levy (tax that the national Treasury calculates as part of the general budget), and the levy that finances the Road Accident Fund.
Each factor in this equation can be fine-tuned to a greater extent. The profit margin of wholesalers and retailers could be cut back, but that would make a very small difference. Each of these cost items influence the entire distribution chain and any cuts could cause needless disruptions.
Two months ago, the Department of Mineral Resources and Energy admitted that the most feasible difference lies in adjusting the tax component. At the time, a portion of the strategic fuel reserves was sold to finance a temporary fuel levy cut.
It was obviously only a temporary solution in the hope that either the price of crude oil would drop or that the exchange rate would become more favourable. Neither of those happened, though, which means that the reinstitution of the levy is added to the structural hikes of the final price.
What South Africa is currently facing is an economic disaster that will not take a back seat to the Covid-19 pandemic. Employment and consumers’ spending power are under immense pressure. Due to years of economic mismanagement, there is no leeway in the fiscus to absorb this financial blow without increasing government debt. That will in itself create inflation pressure.
All that remains is for government to, like the rest of South Africa, draw in its purse strings. The best place to start is the large number of government departments that do not seem to make a real difference. Over the past few years, the FF Plus has repeatedly pointed out that Cabinet, and consequently also the number of government departments, must be reduced.
At present, the Departments of Small Businesses Development, of Women, Youth and Persons with Disabilities, and of Sport, Arts and Culture add very little value, but together they cost government approximately R10 billion per year.
If ineffective departments are done away with and corruption is effectively eradicated, government will be less dependent on the more than R80 billion, which it currently collects in the form of the fuel levy.
The FF Plus is, therefore, of the opinion that the fuel levy must be slashed by half, and that Treasury must urgently find areas in which to save.
Moreover, the Road Accident Fund, which currently receives a whopping R2,18 of the fuel price per litre, is constantly making the headlines due to mismanagement. Turning it around will also bring relief in terms of that tax.
South Africa has reached the point where lower tax rates could possibly result in higher income.
Negative economic growth also leads to lower fuel prices, as was seen during the lockdown. And then this goose laying golden eggs will also die.
