Record-high fuel prices: Abolishing the fuel levy could save the economy

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Record-high fuel prices: Abolishing the fuel levy could save the economy
Record-high fuel prices: Abolishing the fuel levy could save the economy

The record-high level of fuel prices is jeopardising the South African economy. Doing away with its tax component completely will help the economy recover and will, ironically, lead to higher state revenue.

The main reasons for the recent price hikes are the climbing crude oil prices and the weakening Rand – factors over which South Africa has no direct control.

It is, however, still a crisis within a crisis of economic decline and corruption, which is under the country’s control to a much larger degree.

From a long-term perspective, the days of fossil fuels are numbered. Electric transport and hydrogen as a source of energy are two technologies that could stabilise the availability of renewable power sources.

But crude oil is still the dominant source of transport energy at present, and the immediate crisis must be overcome.

It is important to consider the calculation of the fuel price once again.

The savings made possible by a recalculation of the basic fuel price and adjustments to profit margins in the distribution chain could make a real difference. That difference could easily and quickly be negated by any further fluctuations in the price of crude oil or the value of the Rand, though.

So, the spotlight ought to move to the tax component.

The various taxes currently comprise R4,77 of the retail price of petrol. In a time of frequent load shedding, there are thousands of litres of retail fuel that are not used on the country’s roads.

And in addition, cheaper vehicles are usually older and have greater fuel consumption. It is, therefore, fitting to change the Road Accident Fund’s compulsory levy to a third-party insurance.

The general fuel levy generates about R90 billion for the state coffers. In comparison, approximately R300 billion was lost due to the national lockdown. That loss was absorbed into the general state economy by means of an emergency budget.

Fuel prices could cross a threshold when the economy grinds to a halt, or even result in civil uprisings.

The crisis that South Africa is currently facing will not take a back seat to what the country has been experiencing since 2020. And equally drastic steps ought to be taken in this regard.

The big difference with the lockdown is that the apparent loss of state revenue amounting to R90 billion is in fact an injection into the economy.

That money is available to households and businesses and could lead to greater economic growth.

It is difficult to predict the outcomes when economic growth takes place. It could result in the state coffers becoming fuller, rather than emptier.

The most important source of state revenue for the South African government is personal income tax, with companies’ tax in the second place.

When the economy grows, these streams of revenue become bigger and consequently, so does the part that the government can siphon off.

Government may be hesitant to sacrifice this source of revenue, but at worst, it will still be much cheaper than an economic collapse and public lawlessness.

Read the original article in Afrikaans by Dr. Wynand Boshoff on FF Plus

SOURCEFF Plus