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Enoch Godongwana’s tough choice: Extend the fuel levy...

Defend Truth

Opinionista

Will Godongwana extend the fuel levy reprieve or brace for inflationary pressures?

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Wayne Duvenage is a businessman and entrepreneur turned civil activist. Following former positions as CEO of AVIS and President of SA Vehicle Renting and Leasing Association, Duvenage has headed the Organisation Undoing Tax Abuse since its inception in 2012.

Minister of Finance Enoch Godongwana has a tough choice to make: extend the temporary R1.50 fuel levy reduction to enable a softer increase in June, or claw back the levy reduction and watch inflationary pressures of a R2.70 to R3.20 increase in the price of petrol unfold.

Believe it or not, the oil price has often traded well above the current price of $110 per barrel, breaching the $130 mark in July 2008. Then, the price of petrol was only R10.70 for a litre (95 octane petrol on the Highveld). At the end of this month, we are heading for well over R24 per litre of petrol, some 130% higher than in July 2008, despite the price of oil being substantially lower.

The reason for the relatively low price of petrol back in 2008 was, as you may have guessed, due to a far stronger rand exchange rate, which traded at R7.94 to the US dollar in that month. In addition to the stronger rand back then, the collective sum of all the fuel levies and charges was R3.40 per litre, which has now increased by about 200% to more than R10 per litre, before we pay for one drop of petrol or diesel.

On Wednesday, 1 June, the price of petrol and diesel will increase once again.

This time around, Finance Minister Enoch Godongwana has a tough choice to make. Extend the temporary R1.50 fuel levy reduction (introduced for April and May) to enable a softer (R1.20 to R1.70) increase in June, or claw back the levy reduction and witness the reaction and inflationary pressures of a R2.70 to R3.20 increase in the price of petrol unfold.

Just a week ago, the decision looked like it would be a tougher one for the minister, when all indications pointed to an increase of closer to R3.90 per litre, if he were to include the temporary R1.50 fuel levy reversal, for June. 

However, the rand has strengthened somewhat over the past week (on the back of the recent interest rate hike), and if the rand continues to strengthen over the last days of May, the increase looks closer to the R3 mark. Nonetheless, the decision of retrieving the R1.50 levy come 1 June will still be a tough one to make.

A full reversal of the fuel levy reprieve will take the fuel price to well over R24 per litre – the highest increase and price ever applied to petrol. 

It will no doubt be a massive shock to the system and the minister would be very wise to exercise caution once again, possibly by easing the pain through a spread of the clawback of the R1.50 reprieve over a three- or two-month period, at R0.50 or R0.75c per month, respectively.

Let’s face it, Godongwana pulled a brave and unprecedented move by introducing the temporary fuel levy reduction of R1.50 in April. I say brave, because he must have taken a gamble that, by June, either the rand would have strengthened, or the international oil price may have stabilised and subsided somewhat to allow him to reverse the fuel levy reduction. 

Sadly, the rand has not gained sufficient ground, neither has the international oil price eased enough for this decision to be an easy one for him.

Credit should be given to Godongwana for going where no minister before him had dared to venture when it comes to reducing the fuel levy to ease the country’s economic pain. 

In addition to this, he also took an unprecedented decision in his first February budget announcement to withhold annual increases to both the fuel levy and the Road Accident Fund.

However, this is the time for bold moves by people in positions of authority, regardless of how difficult the times are for such measures. 

I sincerely hope Godongwana is staring his predecessors down and scolding them for the mess he has been left to fix, following years of short-term thinking and above-inflation increases to fuel and other taxes.

Their decisions to make a quick fiscal buck, combined with a lack of long-term planning and visionary thinking, has stifled investment, while cadre deployment, ineptitude and confused ideologies have sent investors packing for greener pastures, weakening the rand and adding to our woes.

Godongwana has been urged to don his citizen-centric hat when making this fuel levy adjustment decision in the coming days and, in so doing, we trust he will seize this opportunity and turn to his colleagues throughout the public sector to dig deep and find the savings, reduce the waste, increase prudent spending and consider a zero-based budget approach in order to keep the fuel levy reprieve in place.

Who knows, retaining the fuel levy reduction may even become a long-term decision, whereby the R2.8-billion lost could be replaced by a newfound energy within government to change its wasteful conduct. 

These economic hardships do indeed offer any minister of finance around the world with opportunities to be bold. He’s gone where no minister of finance before him has gone. 

Can he do it again? DM

 

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