Call to reduce speed limits in South Africa to help bring down petrol costs

 ·22 Jun 2022

South Africa’s fuel price structure is under the microscope as prices continue to sky-rocket beyond the affordability of many consumers already under financial pressure.

The latest data from the Central Energy Fund points to further fuel price pain for both diesel and petrol vehicle owners in July, with projections taking petrol beyond R26 per litre, and diesel to around R24.50.

The South African National Taxi Council (SANTACO) National Executive Committee meanwhile, met on Tuesday to discuss rising petrol prices within the industry. The committee reportedly resolved to hike fares in July, putting commuters under additional financial strain.

Chief executive officer of the Automobile Association Willem Groenewald wrote in an opinion piece for BusinessLive that a review of the petrol price is needed.

Groenewald noted that the two main taxes contribute R6.11 to each litre of petrol: R3.93 goes to the General Fuel Levy (GFL) and R2.18 to the Road Accident Fund (RAF) levy. “There are growing and vigorous calls for the GFL to be scrapped, which will shave close to R4 off the price of a litre of fuel.”

The chief executive said that scrapping the GFL is unlikely as the government not easily do away with a significant income source, and would just move taxes elsewhere – ” increasing cost-of-living expenses in other ways”.

“Debates in parliament on the fuel price will yield political rhetoric, but we believe a thorough review of the fuel price by experts who interrogate the appropriateness of its components, and the correctness of its calculations, along with dealing more effectively with the disbursement of government funds, is the only way forward,” said Groenewald.

Dick Forslund, senior economist at the Alternative Information and Development Centre (AIDC), highlighted the complicated way in which the country’s fuel price is calculated, with various levies attached. He also pointed to the state of the government’s finances.

Forslund echoed comments made by Groenewald. He said that if you remove the fuel levy, “then you have to increase other taxes”. He said that personal income tax would come into sight for the government – particular targeting high-income earners. Forslund said that reducing the country’s speed limits could go some way toward dealing with the country’s fuel price.

He said that road accidents amount to more than 14,000 deaths annually. The economist said that by reducing the speed limits to 110/90/70/50km/h, as it is in many other countries, you would reduce the consumption of petrol, and reduce traffic-related deaths.

Fewer deaths would also put attention on the Road Accident Fund levy which provides cover for accident victims.

In February, the Road Traffic Management Corporation touted a number of interventions to reduce the number of fatalities on the country’s roads – including speed limit changes.

The corporation said a programme was underway to reduce the speed in urban areas, particularly around schools and routes that cyclists frequent. The RTMC indicated that the speed limit should be reduced from 60km/h to 50km/h on urban roads, and from 120km/h to 110km/h on major roads.

This is in line with a recommendation made by the United Nations that countries of the world should look at reducing speed by 10km/h to reduce the number of fatalities, RTMC chief communication officer Simon Zwane said.

Alexander Forbes Investments said in a monthly economics and markets review that the improvement in total tax revenue collections continued into the start of FY2022/2023, rising by 8% y/y compared to the same period in FY2021/2022 and 17.4% higher than the 5-year average collections.

Significant increases were recorded for personal income taxes up by 13% y/y and VAT (8% y/y).

In contrast, the general fuel levy declined by 9% y/y following the government’s R1.50 per litre reduction in the fuel levy on petrol and diesel prices for April and May, with the reduction extended further for June and followed by a moderation to R0.75 per litre for July. The revenue foregone from the reprieve is estimated at R4.5 billion.

As the war rages on in Ukraine, global oil prices have surged in recent months, it said. South Africa is a net importer of petroleum and this is priced in US dollars. In May 2022, global oil prices averaged $119.9 per barrel resulting in a sharp fuel price increase as the rand depreciated by 1.3% and averaged R15.67 against the US dollar.

In June, oil prices have remained stubbornly high, while the rand is hovering around R16:00 versus the dollar, driven by concerns of rising inflation.  “Global oil prices will continue to rise on the back of the Russia-Ukraine war, meaning fuel inflation will remain sticky,” said Alex Forbes.

Read: What’s driving the surge in South Africa’s petrol price, and the cost of pumping your own fuel at a self-service station

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