Petrol price shake-up for South Africa

Council for Scientific and Industrial Research (CSIR) transport systems and operations impact area manager Dr Mathetha Mokonyama says finance minister Enoch Godongwana has the power to reduce fuel levies to relieve South African motorists.

Speaking to CapeTalk, Mokonyama outlined several approaches the minister could take to reduce fuel prices in South Africa through the soon-to-be-tabled Fuel Price Intervention Plan.

“The minister has, since 2022, put a hold on increasing levies, the general fuel levy and the road accident fund levy, and this year alone, that was equivalent to about R4 billion that government had to sacrifice,” he said.

“So the minister has got powers to increase or reduce certain levies and there’s about a dozen of these extra charges.”

He explained that while most of these fuel price add-ons help recover the costs of producing, transporting, and storing fuel, some charges go to balancing the country’s budget.

Makonyama said another consideration is to import already-refined fuel to reduce capital expenditure on improved technologies in the refinery space.

“One of the things that National Treasury has been saying is that with the refineries, we’ve been paying them to invest in better technology, but they haven’t been doing that,” he said.

“So why don’t we just import refined fuel as opposed to paying for the capital expenditure of improving the technology? That is a conversation that is happening.”

However, he said the Department of Mineral Resources and Energy had always been against the plan.

Makonyama noted that reducing fuel prices in South Africa could negatively impact efforts to reduce greenhouse emissions.

“We need to be very careful about issues of prices both in the short term and long term. Yes, we can reduce the direct costs, but what will that do?”

“One of the things that reducing the cost of fuel is that people could drive more, and that defeats the purpose of reducing greenhouse gas emissions,” he said.

Godongwana recently announced that a Fuel Price Intervention Plan will soon be tabled in Cabinet. It aims to address high fuel prices in the country.

The minister said the plan aims to ensure South Africans can afford fuel and transport. The plan comes after President Cyril Ramaphosa committed to tackling the rising cost of living in South Africa during an address in July 2024.

Speaking at the formal opening of parliament, Ramaphosa said the Government of National Unity would conduct a “comprehensive review of administer prices, including the fuel price formula.

“This we did for a while; as prices of fuel kept rising, we found a way we could stabilise the price. We will seek to find ways to address this challenge,” the president said.

Robbing Peter to pay Paul

Econometrix director and chief economist Dr Azar Jammine believes reducing or eliminating add-ons like the general fuel levy (GFL) could have severe consequences as it would remove a large portion of the country’s annual revenue.

He described it as a situation of “robbing Peter to pay Paul” as government would likely have to recover the costs through other forms of tax.

“I think one should see the statement as one of a series of statements issued to try and appease consumers who are really feeling cash-strapped in the face of high interest rates and the high inflation that has prevailed for several years,” said Jammine.

“It’s very easy to bring down the fuel price by doing away with the fuel levy, but then the government would sacrifice about 5% of its annual revenue.”

It would be forced to look at other sources of revenue, such as income tax, to recover the costs.

“I don’t know that people would necessarily be prepared to pay higher income tax in order to fund lower fuel prices,” he said.

Jammine said the claim that the GFL is earmarked for maintaining the country’s 750,000km road network is false. It goes into the fiscus like various other taxes.

“I think motorists would be very happy to pay more for fuel if they knew that the funds were really being used to upgrade the roads and to prevent potholes and make it easier to commute,” he said.

“The fact is that the fuel levy is not ring-fenced and it forms part of the overall revenue take. That has been the case since it was introduced.”