Bruce Whitfield: Here’s why there is no escaping high petrol prices – and what government can do to make it better
- Government controls two out of the three factors that affect the price of petrol.
- Tax on petrol is a tax on consumption – so it is not likely to go anywhere.
- But there is one key thing the government can do to make the recent increases bite less.
Petrol this week went through R16/l in Gauteng. And if current trends persist, it will rise again next month.
As Business Insider pointed out this week, the price of a litre of petrol has more than doubled over the past decade, including the 165% increase in fuel taxes.
Government is scrambling for an explanation and I see this morning that Ebrahim Patel, the well-intentioned but economically-misguided minister of a ministry euphemistically entitled “Economic Development”, has sought to distance his government from the rampant increases in fuel costs.
That is a bit like a drunk driver blaming the car for hitting the tree.
Government directly affects the price of petrol. Tinkering with the pricing model, though, could have consequences you probably wouldn’t like very much.
See also: This is how SA’s petrol prices doubled in 10 years – including a 165% increase in fuel tax
The fuel price is subject to three different factors, two of which government can influence.
The one it can not influence is the international oil price. That is governed solely by just how cosy members of the long-established international oil cartel Opec are feeling. Opec decides just how much oil should be released onto international markets at any one time. Occasionally an Opec member will break ranks and flood markets in order to benefit from a higher price, but generally cartels function best when everyone sings from the same hymn sheet. Opec, right now, is being annoyingly cohesive.
There are two factors which government can influence.
The first is the economic environment. Clear, pro-growth, investor-friendly government policy would drive up confidence in the domestic economy. It would lead over time to great currency resilience and remove some of the destabilising volatility that rand fluctuations bring to the fuel calculation. Better growth would lead to higher levels of employment that would bring an improvement in PAYE receipts. It would lead to higher corporate profits that would bring higher company taxes and investment rates. It would lead to increased consumption that would bring higher collections of VAT.
Taxes on fuel, along with VAT, are government’s easiest revenue-generating mechanisms. For every litre you put into your tank about a third of the price is in direct taxes. A chunk goes to the Road Accident Fund (whose proclivities we learned this past weekend include expensive furniture-hire contracts) and the balance goes into the general fiscus, not into a special account marked: “road repairs”; way back when PW Botha was waging war in Angola, fuel taxes stopped being earmarked for road repairs and were left to the discretion of the finance minister to apportion as he saw fit.
Government could provide a tax break on petrol. But National Treasury, currently scrambling for every cent it can scrape together to feed the voracious state cash-eating machine, knows it will simply have to get the money it gives back on petrol somewhere else.
The IFP says it will write to MinisterS of Finance Minister, Nhlanhla Nene & Energy, Jeff Radebe, to request the suspension of the general fuel and RAF levies on the petrol price per litre. This could bring down the cost of petrol to around R11 per litre #sabcnews #SAfmSunrise pic.twitter.com/GIQjcJ48UC— SAfm news (@SAfmnews) July 4, 2018
Remember e-tolls, and how smug you felt in helping break the system, ill-thought as it was? Well, the state had expected users of the freeways to happily contribute to Sanral, a division of the department of transport, and when that didn’t happen, there was a hole in the budget. That had to be filled from somewhere.
Remember former President Jacob Zuma’s second last gift to the nation? (His last being his long overdue resignation.) Free tertiary education. Nothing is free. It has to be funded from somewhere. Turns out an increase in fuel taxes is a useful starting point.
Recently Health Minister Aaron Motsoaledi announced “plans” for national health insurance (NHI). “Plans” are deliberately in inverted commas because nothing can be called a “plan” until it has a budget attached to it. He doesn’t have a clue how the scheme is going to be funded. It’s like asking the architect to draw up plans for a home renovation, not bothering to ask the builder what it will cost and wondering why your house has no roof and windows.
Expect a big increase in fuel prices to fund the gap if the NHI ever goes ahead.
Sorry Minister Patel, but government does have a big influence on the fuel price, and it can have a positive impact. Sensible, sustainable policy decisions are the best place to start.
Rather than “uhm" and “ah” about the petrol price, government needs to communicate issues around the fuel price more clearly.
Unlike the rampant increases in electricity prices (which have been caused by a series of spectacular own goals, from deep malfeasance within Eskom to gross incompetence in finishing new power stations within time and budget) the petrol price is actually remarkably simple issue.
Oil prices are high. The rand is weak. And compared to many other non-oil producing nations, we have a relatively low level of taxation on fuel. Not as low as Botswana, but lower certainly than many more developed economies, which tax the living daylights out of petrol.
They see it, like our Treasury does, as a consumption tax. If you choose to drive your car to work rather than take public transport, it’s a form of wealth tax. If you fly on holiday, a portion of your ticket is for fuel and a chunk of that is tax. Petrol in the UK is north of R20 a litre and in probably the worlds’ most effective social-welfare state, Norway which produces oil, it’s around R27 a litre.
It wouldn’t be so bad in South Africa if its citizens could see tangible benefits of higher taxes directly impacting, if not their lives directly, but the lives of most people in the country.
If the state focussed on its most important task – improving the economy – much of the rest would take care of itself.
Bruce Whitfield is a multi-platform award winning financial journalist and broadcaster.
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