Africa-Press – South-Africa. Despite the largest increase in petrol and diesel prices since 2008 being implemented in April on the back of a surging oil price, fuel taxes and levies remain the fastest-growing component of the price paid at the pump.
Altogether, the administered elements of the fuel price, which include the Road Accident Fund (RAF) Levy, General Fuel Levy (GFL), and various “margins”, make up the majority of the final price paid at the pump.
An analysis by Codera Analytics showed that the RAF Levy is the single fastest-growing component of the fuel price, surging by over 500% since 2008.
This growth, coupled with that of the GFL and other administered elements, significantly increases the final price of petrol and diesel.
The RAF levy is used purely to fund the RAF and its operations. With the state-owned entity suffering from mismanagement, the government’s response has been to prop up its finances through increased funding.
The rising RAF Levy has been coupled with strong growth in the GFL, which has increased by around 250% since 2008.
This levy was first introduced in 1983 to fund the maintenance and expansion of South Africa’s road network.
However, the revenue generated from it is not ring-fenced and goes into the state’s general account, meaning the government can effectively do what it wants with the money.
As a result, the GFL has increasingly been seen as a relatively easy way for the government to boost its revenue and support its ailing financial health.
The GFL is an easy tax to administer and has a broad base, making it more attractive and financially viable to increase than personal income tax or corporate income tax.
It also generates a significant sum of money for the state, with the National Treasury projecting nearly R100 billion in revenue from this source.
Apart from the RAF Levy and GFL, other levies on the price of fuel in South Africa include the retail margin, transport cost, and wholesale margin.
Codera’s analysis placed all these into the category of “margins”, which is the second-fastest growing element of the fuel price since 2008.
These margins are set by the government and are intended to cover the costs of storing and transporting fuel, and to ensure forecourts make a fixed percentage profit from the sale of petrol and diesel.
All three of these government-administered elements of the fuel price have been more significant drivers of petrol and diesel price increases at the pump than the Basic Fuel Price.
The Basic Fuel Price is based on oil prices and the rand-dollar exchange rate. This effectively covers the cost of importing the commodity or finished petroleum products.
Administered levies, margins, and taxes are not only the fastest-growing components of the final fuel price, but they also make up the largest proportion of the price at the pump.
The major drivers of petrol and diesel prices can be seen in the graphs below, courtesy of Codera Analytics.
Cannot cut fuel levies for long
While it would bring significant relief to South African motorists, the government cannot reduce fuel levies for a prolonged period of time.
This is because it is a vital revenue source for the state, which is under immense financial pressure.
The current R3.00 relief offered by the Finance Minister is estimated to cost over R5 billion a month. If this is sustained for a significant period of time, there will be a huge hole in the state’s budget.
Stanlib chief economist Kevin Lings explained that the government has little to no buffer to provide this kind of relief for longer than the month outlined by the minister.
“The government has relieved some of the pressure on a temporary basis. This is only for one month, and then the relief will be reviewed,” Lings explained to BusinessDay TV.
“They cannot continue this on because it is likely to cost the government close to R6 billion a month, and they will have to find those additional funds elsewhere.”
Lings explained that South Africa has limited fiscal buffers that can be employed to provide this relief on a sustained basis.
If the state wishes to provide relief for a sustained period, it will have to find R6 billion elsewhere in the budget or borrow it from investors.
Additional borrowing is not an option for South Africa, with the government’s debt burden as a share of GDP rising beyond 78% in the current financial year.
“They do not have R6 billion earmarked within the budget currently, so they will have to scratch around and find R6 billion somewhere else,” Lings said.
“This problem will become significantly worse if they try to provide this relief on an ongoing basis. This can only really be a temporary measure.”
The only hope for South Africa is that the war in the Middle East is resolved fairly quickly and there is some petrol and diesel price relief in May.
Currently, South Africa is looking at another significant fuel price hike in May, with a permanent peace deal between US-Israeli forces and Iran yet to be signed.
A ceasefire has been announced for the next two weeks to try to broker a longer-lasting peace deal. Oil prices fell sharply on the news, while the rand strengthened.
If this situation holds and a permanent peace deal is reached, South Africa can expect relief on petrol and diesel prices in May.
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