OPINION | The problem with SA's fuel price hikes: Levies and a weak economic policy

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fuel gauge with red needle
fuel gauge with red needle

On 3 November, South African fuel prices were hiked once again, causing motorists to pay very close to R20 a litre of fuel throughout the country. Outa's Wayne Duvenage takes a look at what the reasons are behind the fuel price increases over the past decade. 

Two local factors contributing to our current high fuel prices are the weak value of the rand – which we put down mainly to poor government economic policy and management of our fiscal affairs – and our government's constant desire to increase taxes on motorists through fuel-related levies over the years. 

Of course, the recent price of Brent crude of $83.40 per barrel is an external factor that is out of our control, which has increased by around 70% since January's price of $49.20 and has a significant impact on the cost of petrol in South Africa. 

However, a decade ago, the international price of oil was significantly higher than it is now. A decade ago, in November 2011, Brent crude was $109 per barrel, some 31% higher than it is today. Fortunately for us at the time, the rand was a lot better off at R8 to the US dollar, compared to today's exchange rate of R14.72 which is some 84% higher.

If we had the same rand/dollar exchange rate today, the current petrol price would be around R16.00 (i.e. roughly R3.50 lower) per litre of 95 octane petrol (inland price). This is the price of a weaker currency. These two factors (a weaker rand and higher cost of oil) have seen the basic fuel price (BFP) component of our petrol price move from R6.29 per litre for 95 octane petrol (inland), which was 58% of the price of petrol of R10.77 a litre a decade ago, up to R9.37 per litre (48% of the current price of R19.47). This component has therefore increased by 49% over the past decade, despite our currency cost being 84% higher than it was a decade ago.

However, despite the higher BFP component, our concern should be focused on the 126% increase in the various levies and taxes applied over the past decade.  

In November 2011, the combined cost of the General Fuel Levy, the Road Accident Fund (RAF) levy and other levies amounted to R4.48 of each litre of 95 octane petrol. That amount today is R10.10, some R5.62 (126%) higher than a decade ago. This is indicated in the table below, which suggests these levies' impact on petrol prices over time.  

Fuel hikes over the past ten years

OUTA maintains again, as it has on numerous occasions, that the state has pushed the envelope on fuel levy increases too far and should seriously consider pulling back on seeking additional tax revenue. 

Furthermore, the current fuel tax revenues the state relies on – in particular, the General Fuel Levy (around R88bn per annum) and the RAF levy (around R45bn) – will come under significant pressure over the coming decade, as the transition to electric vehicles becomes a reality. 

The state will be hard-pressed to replace these revenue streams through other mechanisms. It should seriously consider zero increases to fuel levies from now on, whilst exploring innovative ways to increase efficiency and reduce reliance on these levies.

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