15c between sense and insanity

Nom Chompsky

Nom Chompsky

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It figures – a fuel levy could pay for e-toll project and fix all roads, writes Brendan Seery.

Amid all the dust of confusing figures that swirled around at the Gauteng e-toll review committee hearings this week, one thing emerged clearly: a fuel levy of 15 cents a litre – or less – would be enough to pay for the highway project.

This is something that the South African National Roads Agency (Sanral) and Transport Minister Dipuo Peters probably don’t want you to realise because they have so much invested in e-tolls, which will cost motorists at least 10 times as much as a fuel levy would.

Peters was quoted as telling the panel that the national fuel levy would have to be increased to R3.65 a litre to pay for the Gauteng toll roads.

It has now emerged, however – from the official PowerPoint presentation – that the fuel levy figure of R3.65 would be enough to take care of the backlog in maintenance for the entire country.

Confused? Maybe that is the intention.

Right through the implementation of the Gauteng Freeway Improvement Project (GFIP) and the e-toll mechanisms, Sanral has produced a tsunami of incorrect facts and figures, misleading calculations and arrogant obfuscation.

It has been extremely difficult, even for those with a mathematical bent, to cut through all the waffle, hot air and deception.

Let’s start with the latest figures.

The levy on petrol is R2.24 a litre and that on diesel R2.09 a litre – or an average of R2.18. The figures are from the website of oil giant Shell, which has a table showing the components of the pump cost of fuel.

To get to the minister’s figure of R3.65 a litre, there would have to be an increase of R1.47 a litre. The levy hike as proposed by Peters is 67 percent, as a round figure.

The government’s revenue for 2013/14 was R985.7 billion – according to economist Kevin Lings, who analysed the Budget last year for Stanlib.

Of this amount, the fuel levy accounts for 5.2 percent or about R51.2bn.

An increase in the levy of the size contemplated by Peters – 67 percent – would mean revenue from the levy would be R85.5bn, or R34.3bn more.

Wherever that amount is channelled, you cannot escape the mathematical conclusion that an increase of R1.47 a litre in the levy would bring in R34.3bn.

That is about 10 times the amount needed each year to service the GFIP debt.

That debt, as stated by Sanral and government officials, is about R20bn, and R3bn a year would be sufficient to pay it off – and the interest accrued – within 10 years.

Logically, therefore, a 10th of that increase would be required to pay for the GFIP alone.

In other words R0.147. Or in layman’s terms, 14.7 cents a litre.
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Continue reading: http://www.iol.co.za/saturday-star/15c-between-sense-and-insanity-1.1777454#.VF9kMTTQpQs
 
wait so a price sticky absorption fund could actually not only resolve the e-tolling situation but actually cover roads infrastructure futures?

Fuel prices in SA a fixed by a formula and a simple adjustment such that fuel price decreases (which do not work their way into the economy, but increases do) are deferred with the difference ring-fenced would be an absorption, using times of diminished pricing for road improvement reduces the magnitude of an oil price cycle on the real economy.
 
Is this in addition to the existing fuel levy for roads?

Many years ago, under the previous regime, the policy was "SA will not have toll roads". A fuel levy was introduced for road building and maintenance.

The big problem with the current levy is that it's not ringfenced for its intended purpose. Instead of going to roads it goes into the general coffer and only a fraction ends up for roads.

If the current fuel levy is increased to cover the e-tolls junket, what assurance does the taxpayer and motorist have that those revenues will be applied as intended?
 
Arthur said:
Is this in addition to the existing fuel levy for roads?

Many years ago, under the previous regime, the policy was "SA will not have toll roads". A fuel levy was introduced for road building and maintenance.

The big problem with the current levy is that it's not ringfenced for its intended purpose. Instead of going to roads it goes into the general coffer and only a fraction ends up for roads.

If the current fuel levy is increased to cover the e-tolls junket, what assurance does the taxpayer and motorist have that those revenues will be applied as intended?
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She is claiming that the total levy will be that amount.

The problem is that SANRAL wants the entirety of the fuel levy to itself which violates a user pay principal and is the height of crony capitalism and privatization of profits socialization of harm.
If we add municipal and provincial road maintenance there remains a shortfall so it isn't a case of the fuel levy being wasted on general expenditure but rather that due to a lack of hypothecating and accountability poor decisions on building roads.

My argument is that our fuel price is regulated and fixed which while inefficient is the case. Any tax overlaid is a salt tax pure.

Therefore while an increase in the fuel levy is unoptimal from a Pareto perspective room, riding out the price fixing of an economic monopoly is less inefficient and considerably more efficient that etolling.

This is before we consider the salt effect of the RAF. However by using the business cycle effects of a fluid underlying fuel price and the sticky nature of consumer prices there is value to be absorbed into paying for the mistakes of successive governments and setting course towards a less perverse incentive driven decision making process.
 
Paul Hjul said:
... due to a lack of hypothecating ...
... Any tax overlaid is a salt tax pure.
... from a Pareto perspective room ...
... business cycle effects of a fluid underlying fuel price and the sticky nature of consumer prices ...
... less perverse incentive driven decision making process.
Click to expand...

Yikes! You make my head spin.
Maybe you have a dumbed down version for us plebs?
 
not a case of dumbing down for the plebs but rather a collection of fuzzy thoughts

The guys with a proper background in economics will be able to give a better explanation of the different thoughts whirling about and point out where I am missing the boat.

but let me try to give setting out a better explanation - refining the thought process a bit better - even if only to make it easier for one of the economics buffs to point out a problem in my reasoning.

What I am suggesting is that on the ministers figures both as to what is needed to service existing debts and what not (so no expansion and minimal maintenance) and what is needed to expand there is an opportunity for the more effectively deployment - and eventual dismantling - of the States monopoly in the fuel and roads market. Eliminate the situation where the fuel levy is set by the Minister of Finance annually as a general tax and instead work in a similar manner to the Reserve Bank in the money markets with the objective of avoiding price increases at the pump which means that quite often when the oil price plummets or the rand strengthens there is a windfall into the road fund.

... due to a lack of hypothecating ...
hypothecating (possibly spelt wrong) is the act of setting aside something for a specific purpose - often called ring-fencing: http://en.wikipedia.org/wiki/Hypothecated_tax

... Any tax overlaid is a salt tax pure ...
In ancient times salt was taxed because it was rare and was a monopolized trade open to being heavily taxed (much like stamp and tea taxes, although with stamp duty its a little more nuanced as to the justice of things) and is a commodity that people will continue to need even as you tax it to oblivion. In the process the heavy tax suppresses economic activity and agency amongst one section of the population while the royal courts activity benefits.

During the Victorian era a great deal of macro-economic thought was related to what became the "treasury view" which Keynesian economics sought to disprove, the jist of the view is that macroeconomic policy of the fiscus is meaningless but it is A LOT more nuanced. One of the particular phenomena which was observed is that a certain level of taxation on an low elasticity commodity begins to destroy the welfare and economic activity of a section of the population with the salt tax in India being the case.

Quoting from the Wiki: http://en.wikipedia.org/wiki/History_of_the_British_salt_tax_in_India
The Indian Ryot said:
Then again there is a still more wretched creature, who bears the name of labourer, whose income may be fixed at thirty-five rupees per annum. If he, with his wife and three children, consumes twenty-four seers [49 lb] of salt, he must pay a salt duty of two rupees and seven annas, or in other words 7 ½ per cent income tax. Now we leave it to our readers to judge, whether the ryots and the labourers can procure salt in the quantities they require. We can positively state from our own experience, that an ordinary ryot can never procure more than two-thirds of what he requires, and that a labourer not more than half.
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Basically by heavy taxation rates you are forcing servitude and while poll taxes have the same effect (and sometimes intent) a pure salt tax - where a commodity is taxed with an overlaid tax that drives the price to a point at which it acts as a millstone on economic activity is a particular evil of most instances of imperial rule.

My argument is that additional levying on fuel is a salt tax pure.

... from a Pareto perspective room ...
http://en.wikipedia.org/wiki/Pareto_efficiency
Because you are making people poorer ...

... business cycle effects of a fluid underlying fuel price and the sticky nature of consumer prices ...
http://en.wikipedia.org/wiki/Nominal_rigidity
our current petrol price at the pumps while regulated (and price fixed) changes every month - it is therefore fluid - in a way that aggravates the effects of inflation: when petrol price goes up prices go up, petrol being reduced in price doesn't cause prices to come down. Competitive markets have less "lag" and all that jazz.

... less perverse incentive driven decision making process.
not fully explained in what my long term thinking is but essentially it boils down to this - by keeping
 
It's a whole heap simpler than economics - it's basic maths.

The country has a view on what it needs to spend each year on roads (new, upgrade and maintenance) and will have this view extend 20-30 years into the future. It isn't going to be the same amount every year if you did it on an annual basis but you can take the expected expenditure over 20 years and divide it by 20 to get the average annual amount.

If you decided that you'll use the link with fuel as the tax gathering mechanism you can estimate how much fuel will be sold over 20 years and divide by 20 too.

Divide the average annual amount being spent on roads by the litres sold per year and you'll be left with the amount you need to charge per litre.

I will grant that it may become an economics question if the amount of this tax is such that it significantly impacts in terms of its marginal usage. And that is precisely what SCUMRAL have done.
 
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