Experts welcome cut in levy, but warn fuel prices may still go up

DURBAN - EXPERTS have welcomed the reduction in the fuel levy, but say fuel prices might still go up this month, due to the ongoing Russia/Ukraine conflict and the high price of Brent crude oil.

In a statement issued by the National Treasury on Friday, Finance Minister Enoch Godongwana and Mineral Resources and Energy Minister Gwede Mantashe announced a temporary reduction in the general fuel levy.

The reduction is to be funded by a liquidation of a portion of the government’s strategic crude oil reserves.

The general fuel levy for petrol and diesel is to be reduced by R1.50 per litre from April 6 to May 31, 2022, the statement said.

Layton Beard, of the Automobile Association (AA), said they welcomed the decrease of the fuel levy announced by the National Treasury.

“It will no doubt cushion the blow as we still expect there to be a fuel price increase. We, however, welcome this move and hope that more attention will be paid to the fuel levy in future.”

Dr Sanele Gumede, a lecturer in economics at the University of KwaZulu-Natal, said the increasing fuel price had led to inflation increasing, and the government had to act to help boost the economy.

“The people of South Africa have already been dealt a blow with the recent increase in the interest rate and now with another fuel price hike looming, the fuel levy cut will lessen the impact of the fuel price increase. Unfortunately even with a decrease in the fuel levy, consumers shouldn’t expect a decrease in the price of food and goods. It might delay increases a bit, but it won’t cause any decreases.”

Gumede hoped the temporary decrease in the fuel levy would lead to something more sustainable for consumers, with a more permanent decrease in the fuel levy.

“We have to bear in mind the situation of the poor with all the increases. We need policies by the government to help the poor and working class.”

Professor Bonke Dumisa, an independent economic analyst, said that he definitely expects an announcement of fuel price increases this week.

“We have to understand the need for the fuel levy reduction. With the rising cost of living, transportation contributes 34% to the cost of living, not only the cost of businesses. The price of Brent crude oil has shot up to $140 (R2 045) a barrel due to Russia’s invasion of Ukraine, and this has made the price of petrol very high.”

He said the government cannot control the outside impact of the rising cost of oil, and the only way to assist the consumer was to reduce the fuel levy.

“During the Budget Speech in February, Finance Minister Enoch Godongwana said there would be no increase in the fuel tax, and the government has taken it a step further by announcing a reduction in the fuel levy.

“However, this would imply that there still will be a big increase in the fuel price, but a reduction in the fuel levy would lessen the impact. Remember, the government has no control over the Brent crude oil price.”

Dumisa added that the government’s handling of the fuel situation might help improve the negative outlook of South Africa’s economy.

“The fuel levy decrease is a way for the government to show international economies that they are on top of the fuel situation in South Africa, which hopefully would pave a way out of South Africa’s junk status. I expect the fuel levy to be increased once the Russia/Ukraine crisis is resolved.”

Dr Ntokozo Ndimande, research associate in the UKZN Macroeconomics Unit, said the fuel levy decrease was a good move by the government.

“We welcome the move, but I feel this is not enough and I don’t think it will have a huge impact on the fuel price and the economy.”