South Africa

Big increase in fuel tax expected

Petrol price

Efficient Group founder and chief economist Dawie Roodt expects the finance minister Enoch Godongwana to increase the fuel levy significantly.

Godongwana will deliver his budget speech in Parliament in February, and there is a lot of interest in his plan for taxes.

The ANC has voiced its support for increasing taxes, including a wealth tax, to fund a basic income grant.

Roodt said South Africa’s fiscal accounts remain in trouble and the state needs more money, but don’t expect a wealth tax to be implemented soon.

The finance minister is more likely to significantly increase the fuel levy, a tax on each litre of fuel sold.

“It is an opportunity for the finance minister to generate additional income for the state,” Roodt said.

Instead of passing petrol price cuts to consumers because of lower oil prices, Godongwana can keep prices stable and use the difference to increase the fuel levy.

Roodt previously warned that South Africa would probably see an increase in the petrol price in March because of the fuel levy increase.

However, it is not all bad. Roodt explained that the fuel level is a “less bad” tax than other taxes.

“The increase in fuel taxes is very painful, but a tax on petrol is less damaging to the economy than an increase in company or personal income taxes,” he said.

Dawie Roodt
Dawie Roodt

Things to keep an eye on in the 2023 budget

Apart from a higher fuel levy, there are a few prominent issues economists will keep an eye on in finance minister Enoch Godongwana’s 2023 budget.

He has a difficult task of addressing the unsustainable state debt levels and strengthening the country’s fiscal accounts, especially ahead of next year’s election.

Roodt said there are a few outstanding issues that Godongwana must address in his 2023 budget speech.

  • What will happen to Eskom’s debt? The power utility owes around R400 billion, and the minister previously said the state would take over some of the debt.
  • Will South Africa see a basic income grant? The country cannot afford it as there are around 30 million people receiving an income from the state every month.
  • Will we see additional taxes? The idea of a wealth tax has been discussed over the last few years, which means there is this possibility.

Roodt highlighted that state revenue had done better than previously expected, mostly because of the strong commodity cycle. “That will not last,” he said.

The weak economy also means that debt-to-GDP may be adjusted upwards.

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