The government has cut the fuel levy by almost 40% between next week and the end of May at a total cost to the fiscus of R6bn to cushion consumers and businesses from the effect of prices that have jumped to record highs in the wake of the Russian invasion of Ukraine.
Finance minister Enoch Godongwana told the National Assembly on Thursday that the levy would be reduced by R1.50 a litre from April 6 until the end of May. That will bring the charge for petrol down from R3.85c/l to R2.35c/l.
The levy on diesel will be cut from R3.70c/l to R2.20c/l.
Godongwana said there would be no need for a supplementary budget as the cost will not affect the fiscal framework and will be covered by the sale of SA’s strategic crude oil stocks. Even before the current surge in prices, the government provided relief in the 2022/2023 budget by freezing the fuel levy and the one for the Road Accident Fund, at a cost of R3.5bn.
SA joined other countries that have acted as the war in Ukraine led to a surge in prices, compounding a standard of living crisis that was already evident as higher inflation put a squeeze on households as wages failed to keep up.
Reuters reports that the US is to release 1-million barrels a day of crude oil for six months, starting in May, a senior administration official told reporters.
In SA, the petrol price reached a record R21.60/l for 95 unleaded petrol in the inland region and is expected to rise even further in April.
The levy reduction does not mean an absolute cut in prices but increases that would be less than they would have been if determined by relying just on what data from the Central Energy Fund suggests.
Consumers have also been hit with interest rate increases in each of the past three policy meetings of the Reserve Bank, though the rate still remains well below levels before the Covid-19 outbreak.
The government is exploring other measures that may come into effect in June, such as allowing retailers to deviate from regulated prices.
These measures emerged from engagements between Godongwana and mineral resources & energy minister Gwede Mantashe, who decided on a two-phase approach.
“The intention of the temporary reduction of the general fuel levy is to support a phasing in [of] the fuel price increases that we are expecting in the short term. This will go some way in assisting South Africans to adjust to the new reality,” Godongwana said.
During the debate on Godongwana’s statement, some MPs raised concern about the risk entailed in the sale of strategic oil stocks. These stocks are meant to address emergencies, they said, with a few suggesting that the tax windfall from higher commodity prices should be used instead. It is a “high-risk and reckless” decision, DA MP Dion George said.
The reduction in the fuel levy will be included in the 2022 Rates and Monetary Amount and Amendment of Revenue Laws Bill.
Godongwana said a big concern of the Russia/Ukraine conflict for the SA economy is imported inflation, especially the direct impact on fuel and food prices. He is also concerned about the economic outlook, saying it is “less promising and subject to new, emerging risks”.
During his budget speech in February, Godongwana forecast GDP growth of just under 2% in each of the next three years.
“We are equally concerned about the secondary effects on the rest of the economy, and the overall impact on the local and global economic recovery that was beginning to take root.
“The growth outlook going forward is much less promising and subject to new, emerging risks. Most notable of these risks is the Russia/Ukraine conflict,” he said.
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