South Africa could scrap e-tolls this week – and pay for it with a petrol hike: economists
Finance minister Enoch Godongwana is expected to provide clarity on Gauteng’s e-toll scheme in his inaugural budget address on Wednesday (23 February).
In a November 2021 media briefing, Transport minister Fikile Mbalula said that a decision on the controversial tolling scheme has been delayed due to an inability to finalise consultations between his department and Treasury, and Cabinet.
At the time, he explained that irrespective of what decision the government takes on e-tolls there would be a financial cost involved and that Godongwana will provide further details in his budget speech.
Mbalula said that e-tolls will need to paid for in some form – whether they are kept in place or scrapped, they need to be paid for all the same, and a decision has to be taken, he said.
While Gauteng residents would likely welcome the scrapping of the controversial scheme, it could come at a national cost, the Bureau for Economic Research (BER) said.
“If the Gauteng e-tolls are scrapped, national road agency Sanral may also require support. In addition, a higher-than-normal fuel levy hike may also be on the cards if the e-toll system is removed,” it said.
This could prove to be particularly poor timing as the Brent crude oil price has increased sharply since the start of the year, as tensions between Russia and Ukraine have further squeezed an already tight market.
“Indeed, after an increase in February, petrol prices are expected to rise even steeper, by about R1.30/litre, next week,” the BER said.
Paying for the e-toll system through a hike in the fuel levy was one of the alternatives proposed by e-toll critics before the system went live almost a decade ago.
Long-time opponents of the system, Outa, said that a 10 cents per litre increase in the fuel levy in 2007 – when e-tolling was first approved as part of the Gauteng Freeway Improvement Programme – would have seen all capital debt for the system paid off by 2015.
The government has for 10 years rejected fuel levy hikes as a way to pay off e-tolls as “unsustainable”. However, the national treasury has increased the tax by R1.70 since e-tolls come into effect in December 2013.
Over the same period, widespread rejection of the e-toll system by motorists, and the failure of the government to timeously address the issue, has led to South Africa accruing billions of rands in debt, necessitating bailouts for Sanral, and leading to the deterioration of the country’s entire road network due to lack of funding.
Other budget concerns
The 2022 budget is expected to have positive short-term news but at the same time raise uncertainty about medium-term fiscal sustainability, the BER said.
“Driven by continued high commodity prices, a sustained corporate tax windfall should see overall gross tax revenue in 2020/21 exceed treasury’s estimate at the time of the November mini-budget statement by at least R50 billion (0.8% of GDP).” This is conservative, with the final revenue overrun potentially notably higher, it said.
“Indeed, if the pace of revenue outperformance in the first nine months of the 2021/22 fiscal year is sustained through March 2022, revenue will top the November projection by roughly R130 billion (2% of GDP).
“In our view, the improved revenue outcome could result in a narrowing of the main budget deficit to 5.6% of GDP in 2021/22, much lower than the 6.6% expected by Treasury in November and a vast improvement from the Covid-induced 9.9% of GDP in 2020/21.
Some of the key issues to look out for include:
- Updated projections for the public sector wage bill. With no clarity as yet on any new agreement, Treasury may stick to the flat projection for the wage bill in 2022/23 outlined in November. In our view, this is unlikely to materialise.
- A likely delay in the signalled corporate tax cut (from 28 to 27%) amid indications that the accompanied corporate tax base-broadening measures have not been implemented yet.
- Injections to state-owned enterprises (in addition to the current budget baseline). Denel and the Post Office come to mind.
- Any progress with Eskom debt transfer discussions. We do not expect any major announcement on this, but it remains another major medium-term fiscal risk.
- Confirmation/denial that government is considering buying the Sapref oil refinery from Shell/BP.
- Progress on Treasury’s macroeconomic policy review, including to assess fiscal, monetary and macroprudential policy. The November budget statement mentioned that the draft review is scheduled for release for public comment by the end of March 2022. The review may pronounce on the feasibility of lowering the SARB’s 3 to 6% inflation target.
Read: What to expect from South Africa’s budget this week – including taxes
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