Fears government will hijack expected fuel price cuts to fund GFIP

Concerns are being expressed that the government may hijack the consumer benefits of an expected reduction in fuel prices and use them to pay for the Gauteng Freeway Improvement Project (GFIP).

Organisation Undoing Tax Abuse (Outa) CEO Wayne Duvenage said on Tuesday the organisation is concerned that Minister of Finance Enoch Godongwana may seize the opportunity presented by the expected petrol price reduction in the first week of September to increase the fuel levy by 25c to 30c per litre to raise additional revenue to cover the GFIP bonds, which the e-toll debacle has failed to do.

Read: Petrol and diesel could fall by over R2 a litre in September

This follows Transport Minister Fikile Mbalula’s admission in June that a decision taken by cabinet on e-tolls was taking government in the direction of the fuel levy – but this plan was scrapped because of the then sharp increases in oil and fuel prices.

Mbalula added that a final decision on the future of e-tolls will be announced when Godongwana delivers the Medium Term Budget Policy Statement (MTBPS) in October, or before then.

He said the fuel price had surged, with the conflict between Russia and Ukraine exacerbating the situation in South Africa.

Mbalula said the fuel price, among other factors, affected the government’s decision to backtrack on the idea of using the fuel levy “to do away with [e-tolls on] GFIP”.

“The fuel levy story has become very messy over time and it’s no longer an option we can consider, among others. So we are not taking that route. We are looking at various options in terms of e-tolls, which we will finalise before the MTBPS,” he said at the time.

Read:
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The Automobile Association (AA) reported on Monday that significant decreases in fuel prices are expected in September based on current unaudited mid-month data from the Central Energy Fund.

It said the expected decreases in September will not be mitigated – as they were this month – by any refunds to the General Fuel Levy (GFL) and that the fuel price reductions will therefore be substantial.

It said the latest data indicates that 95 unleaded petrol (ULP) is expected to drop by about R2.60 a litre and 93 ULP by about R2.45 per litre, while the wholesale price of diesel is expected to decrease by about R2.30 per litre and the price of illuminating paraffin by almost R2.00 per litre.

The AA said the main drivers behind the expected decreases are the strengthening in the value of the rand and lower international oil prices.

‘Strong hints’

Duvenage referred to Mbalula’s comments that an announcement on the e-toll decision is expected to coincide with the MTBPS in October, and to strong hints that the Minister of Finance will increase the fuel levy to off-set the scrapping of e-tolls.

“Should this happen, Outa will denounce this decision on the basis that the fuel levy has already been increased in excess of R2.50 per litre since the Gauteng freeway upgrade began in 2008,” he said.

“Government failed to take up Outa’s suggestion of a ring-fenced 10c per litre increase to the fuel levy some 11 years ago, which would have settled the freeway bonds by today,” he added.

Duvenage said the government has made extremely poor decisions in the past, not only on the various fuel levies and taxes, but also on the road financing options available to it.

He warned that short-term financial gains lead to long-term negative ramifications for taxpayers, adding that a 25-cents-a-litre increase in the fuel levy will result in an additional R5.5 billion flowing into Treasury’s coffers each year.

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Duvenage said this inflow needs to be compared to “a correctly priced Gauteng freeway upgrade, which ought not to have cost the state more than R0.5 billion a year to finance this capital investment over 20 years”.

He added that then minister of finance Nhlanhla Nene decided in February 2015 to introduce massive and unnecessary increases of 14% or 30c a litre to the general fuel levy and 48% or 50c a litre to the Road Accident Fund (RAF) levy after the petrol price dropped from slightly over R14 per litre in mid-2014 to R10.31 a litre eight months later.

“These short-term decisions may provide government with quick-fix short-term tax gains, but they have a detrimental impact on the country over the long term.”

He added: “Government should instead be looking at introducing greater efficiency into managing the country’s affairs, as opposed to seeking ways to lean more heavily on its taxpayers.”

AA spokesperson Layton Beard said on Tuesday the AA would be unhappy if the government increased the fuel levy to pay for the GFIP.

He said the general fuel levy generates R90 billion for the fiscus annually and the AA supports the use of a portion of these funds to pay for the GFIP, but this is subject to the fuel levy not being increased and the government using the current funds being raised to pay for the GFIP.

“Had this happened 10 years ago when the suggestion was first muted to ring fence a portion of the money from the general fuel levy for this exact purpose, there would not have been an issue with the funding of GFIP,” added.

Tax on the poor

“The general fuel levy is currently pegged at R3.93 per litre and the AA has consistently over the last decade or even more been saying you cannot increase the fuel levy because it will increase the price of a litre of fuel and it’s a tax on the poor and just places extra financial pressure on every consumer in the country,” said Beard.

Beard noted that the funds raised via the existing fuel levy go into the pot of funds administered by National Treasury, and questioned how this money is currently allocated – and if it is being misappropriated.

He agreed that it will also be contrary to the government’s user-charge principle to allocate funds raised through the fuel levy to non-road-transport-related projects.