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FutureGuide
 
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How much of our petrol price actually pays for petrol?

04 March 2014, 10:41

We are all painfully aware that, come Wednesday morning, our petrol prices will be increased by 36c per litre to bring the total price to new record highs – R14.32 for unleaded petrol inland and R13.95 at the coast.

Our collective, and natural, response is to bemoan rising fuel levies. Unfortunately, this month’s 36c increase does not yet include the 20c levy increase announced by the government in the budget speech last week (which will only take effect in April). The queues at pumps this Tuesday will not be the last we see.

The latest increase did, however, get us thinking about where our money is actually going when we fill up. We did a little research and have discovered that between only 53% and 55% of the price we pay for petrol actually pays for the petrol itself. The balance, almost half of the price, goes “elsewhere” - the bulk of it in contributions to tax (namely the fuel levy) and the Road Accident Fund (RAF). This portion alone currently accounts for R3.08 for each litre pumped and will increase to R3.28 from April. 

In March 2009, the price we paid for petrol in Gauteng was R6.88 per litre. On Wednesday that price will increase to R14.32. That represents more than a 100% increase over a five year period, an annual increase of almost 16% per annum and a price rising three times faster than inflation (which was 5.4% over the same period). Unless part of the fortunate few, our incomes would not have grown nearly as fast as that, meaning that we have simply had to find the money for these increases elsewhere in our budgets.

To try and understand where this dramatic price increase has come from, we first looked at the price of Brent crude and the Rand Dollar exchange rate. Five years ago the price of Brent crude was $44.94 per barrel. It is now around $110 per barrel, which represents an annual increase of 19.5%. Taking the Rand Dollar exchange rate into account, the cost of Brent crude has increased by almost 21% per annum over this period. 

This can certainly explain the bulk of the petrol price increases. However, if the actual price of the petrol itself is only around half of the total price we pay, where has the rest of the petrol price increase come from?

The answer lies in the amount that we currently pay for the fuel and RAF levies. It is quite difficult to get a feel for the current cost of these levies in isolation, so we investigated how this cost has changed over the years*. Of course, we would expect this cost to increase broadly in line with inflation. Exactly five years ago, in March 2009, the fuel and RAF levies amounted to R1.73. This means that these levies have increased by almost 80% over the past five years to stand at a soon-to-be R3.28; an annual increase of 12.2% per annum.

To put this in perspective, over the same period, Consumer Price Inflation was 5.4%, as mentioned earlier. Should the fuel and RAF levies have increased at the same rate as inflation, they would amount to R2.26 today, rather than R3.28. In our opinion, this is none other than a stealth tax and unlike the international crude oil price, it is certainly something our government has control over.

When we hear people saying that they are struggling to make ends meet, we do not believe they are simply complaining for the sake of it - it is a reflection of the reality of their situation.  Economists analyse mountains of data to draw conclusions about the financial state of South African households. They look at things like debt ratios, or savings rates, and conclude that people are struggling. But simply look at the queue of cars on a Tuesday night before a petrol hike and you’ll get a feel for people’s finances. Queues have never been this long before; surely a sign of how much people are struggling. 

To add insult to injury, the fuel levy is charged primarily to pay for road maintenance. Given that the income government is drawing from this levy has increased significantly faster than inflation, it would be reasonable to expect equally improving road quality. Instead, we have eTolls and potholes. 

*We relied on our own research to determine the historical fuel and RAF levies. This data is not readily available, but we are confident that the figures are accurate.

FutureGuide is a resource of financial tools you need to make your money work. 
Visit us at
futureguidefinance.com or follow us on Twitter @futureguidefin

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