MOTORING NEWS - It is expected that we must steel ourselves for another huge fuel price hike in July. AA CEO Willem Groenewald was asked by Business Day to write a column expressing the association's views on how to mitigate against rising fuel costs.
Groenewald's article below was printed in the 21 June edition of the paper.
A close examination of South Africa's fuel price structure, and large-scale intervention to stop wasteful expenditure of taxpayers' money, are central to addressing the country's soaring fuel prices.
In 2020, Dr Rod Crompton of the African Energy Leadership Centre at Wits Business School, and other authors, wrote a working paper entitled, "Petrol price regulation in South Africa: Is it meeting its intended objectives?". They noted that, "… the BFP (basic fuel price) has not been regularly reviewed as global markets have shifted. There is some evidence to suggest that it does not yield a true import parity price (IPP)".
That IPP is the cost South Africa pays to import fuel into the country and if the BFP (the basic cost of fuel before taxes and associated costs are included) does not accurately reflect the IPP, there is cause for concern.
Dr Crompton and his colleagues further noted, "longer term comparisons between the BFP and actual import data, together with various other models, are needed to reveal if the BFP is accurately reflecting a true import parity price (IPP)".
Such a review of South Africa's fuel price is essential, and long overdue. It must also be conducted against the backdrop of serious governance challenges facing the country, especially as they relate to the fuel price. Discussing solutions to mitigate against rising fuel costs cannot occur in a vacuum without the contextualisation of corruption and revenue distribution.
In our submission to the Parliamentary Portfolio Committee on Mineral Resources & Energy in 2021 we noted that citizens justifiably question the spending of revenue generated from the two main taxes on fuel. Not including the recent concessions by the government, the two main taxes contribute R6.11 to each litre of petrol: R3.93 goes to the General Fuel Levy (GFL), and R2.18 goes to the Road Accident Fund (RAF levy). The GFL on diesel is lower by 14 cents/l.
The government generates around R90bn annually from the GFL, and in an environment where corruption and the misappropriation of funds impedes government's ability to adequately provide services to citizens, how the state allocates revenue raises serious concerns. There are growing and vigorous calls for the GFL to be scrapped, which will shave close on R4/ off a litre of fuel. But is this the best way forward?
Scrapping the GFL may be counterproductive inasmuch as government, loathe to part with such a significant income, may simply find other mechanisms to replace this lost revenue stream. Such alternatives will result in higher taxes elsewhere or the introduction of new taxes, thus increasing cost-of-living expenses in other ways.
Discussions on dealing effectively with corruption and the state's allocation of funds in relation to the GFL are therefore critical; would a citizenry that sees public money working for it take issue paying these taxes?
The RAF levy is problematic for several reasons.
The fund is mismanaged and in a state of financial ruin. Private sector intervention in this institution is necessary and non-negotiable. But the bigger question, which is sadly not asked often enough, is why we have such an over-reliance on the RAF in the first place. By its own account, government pegs the cost of road crashes to our economy at around R193bn annually.
Why then, did the country's lead agency responsible for road safety, the Road Traffic Management Corporation, have a surplus of nearly R262m in its 2020/2021 financial year? Surely in a country with one of the highest per capita road fatality rates in the world this money should have been spent on road safety campaigns. When last did you see one of those? And do children receive any comprehensive road safety education in school? Our over-reliance on the RAF – and continued taxation through fuel for the RAF – is a direct result of our country's inability to curb road crashes and deaths.
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