Petrol price relief through fuel levy cuts a bad idea – Dawie Roodt

South Africa’s government does not have the fiscal space to offer any petrol and diesel price relief in April, as it needs the revenue from increased fuel levies to bolster its financial health. 

This means the state cannot implement a smaller increase to the General Fuel Levy (GFL) and Road Accident Fund (RAF) Levy than those announced in the budget, as they are crucial to its fiscal outlook. 

The additional revenue is a key part of the National Treasury’s projected stabilisation in the government’s debt as a share of GDP. 

Efficient Group chief economist Dawie Roodt dismissed efforts by various political parties to push for a smaller hike to fuel levies as cheap political points-scoring ahead of elections. 

The DA, in particular, has called on the government to halve the GFL and RAF Levy in their entirety as a measure of relief for motorists amid record price increases set for April. 

Levies on fuel will make up R6.58 of the price per litre of 93-octane petrol and R6.45 per litre of diesel following the inflation-linked increases to the GFL and RAF Levy. 

Halving these would provide significant relief for motorists, reducing the potential April hikes by R3.29 for petrol and R3.23 for diesel. 

However, Roodt said such a proposal is unrealistic as it would significantly impact the government’s revenue, its primary surplus, and plans to stabilise debt. 

The GFL has become a vital source of revenue for the state, with it generating R100 billion in tax revenue across a broad base. Fuel levies are also relatively easy to administer. 

“I think reducing the fuel levies is not a good idea. Remember, the fiscal accounts are in deep trouble. This is just cheap politics,” Roodt said. 

“In the end, what is going to happen is that there will need to be an increase in other taxes to make up the shortfall, or the state will have to spend less.” 

An easier solution would be for the government to borrow money to make up the shortfall, but South Africa cannot afford that because of its substantial debt burden. 

South Africa’s government debt as a share of GDP is above 78%, with it already costing the state 22% of all annual revenue to service. 

“You will always get political parties giving you all sorts of solutions, but they will never tell you about the other effects and, potentially, increases to other taxes,” Roodt said. 

Record fuel price increases are coming 

South African motorists are set to experience the largest increase in petrol and diesel prices in the country’s history, which may lead to an inflationary shock. 

EY Africa chief economist Angelika Goliger said recent modelling by the financial services firm indicates that South African consumers and businesses face a substantial fuel price shock. 

This has been driven by the conflict in the Middle East following US-Israeli strikes on Iran at the end of February. Around 20% of the global oil supply has been disrupted. 

The conflict has also seen the South African rand weaken significantly, as investors dump emerging-market assets in favour of safe havens such as the US dollar and Swiss franc. 

This is a near-perfect storm for petrol and diesel prices in South Africa, with supply disruptions combined with higher import costs. 

EY’s modelling points to the following increases for petrol and diesel in South Africa –

• Petrol – Currently averaging approximately R20 per litre, petrol is projected to rise by between R6.87 and R7.88 per litre at the next price adjustment. In a severe scenario, prices could reach as high as R32 per litre by the end of 2026.
• Diesel – Diesel is expected to increase by R9.82 to R11.39 per litre. Risks for diesel are materially higher, with potential peaks of R35 per litre by early 2027. 

Apart from the price increases, Goliger hinted at potential supply shortages in South Africa, given the country’s lack of local oil production and declining refinery capacity. 

Goliger estimated that one-quarter of South Africa’s crude oil imports and nearly one-third of its total fuel supply are directly vulnerable to the ongoing disruptions in the Middle East. 

Remgro CEO Jannie Durand said the ongoing conflict in the Middle East is beginning to keep him up at night, with severe consequences on the cards for South Africa. 

“I don’t think anybody knows when it is going to end, not even the President of the United States, to be quite frank. So, it is becoming more of a concern,” Durand said. 

He said the longer the war lasts, the more severe the impact will be on South Africa and the global economy. 

“I think we can already see what is happening in South Africa. People are scrambling a bit. We are going to have some fuel shortages,” Durand said. 

“As you are aware, much of the fuel we use comes from that region in one way or another that we import. So, it is a significant amount, and you cannot just get supplies from other areas.”

South Africa only has one operating refinery to supply Gauteng, its economic hub, and another to supply the Cape provinces. 

“It will have an impact, not just on our companies, but on South Africa more broadly. That is what I am more worried about,” Durand said. 

“People are not in a great position. If higher food prices and inflation come to bear, we can go back to some of the Covid days, which would not be great.”