Fuel price increase expected ahead of the 2021 budget speech

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This year will be a very tough one for SA motorists as more and more fuel prices hike are expected. Minister of finance, Tito Mboweni is set to deliver his 2021 budget speech on 24 February, with fuel levies expected to be an obvious revenue target once again.

Tax experts at legal firm ENSAfrica said that motorists should expect increases in the fuel levies and contributions to the Road Accident Fund to be announced.

“This is likely to be at least 19 cents per litre for fuel levy and an additional nine cents per litre to the Road Accident Fund.

“This is slightly above the inflation rate and will assist to increase the total revenue take. This is a tax that is easy to administer and any increase is less obvious than in other taxes.”

These concerns have been echoed by Dr Francois Stofberg, senior economist at the Efficient Group, who says that around 38% of the current petrol price –  roughly R5.88 – is made up of these two taxes.

He added that hiking these taxes are a favourite for finance ministers in South Africa – it is a broad tax and easy to administer,

“Like VAT, but a bird of another feather. Fuel tax is not seen the same as VAT and therefore easier to get by voters, pesky unions, and party members.

“Considering the dire state of our state finances and the difficulty of increasing VAT or taking more from those with jobs through higher personal taxes or wealth taxes, we expect that fuel-related taxes will increase by as much as R1.50 during the minister’s next budget address later in February. If we are lucky, it will only increase by R1.00.”

Stofberg said that the global oil price is also expected to push the local petrol price higher in the coming months.

As global production returns to pre-pandemic levels, and as the expectation about a new global growth-wave solidifies which will be good news for our commodity producers in South Africa, greater demand will support higher oil prices, Stofberg said.

“And then there is the weather. Colder winters in the northern hemisphere, like the one currently in the United States (US), usually increases demand, causing oil prices to rise.

“Or socio-political tensions flare-up in the Middle East, which can add a couple of dollars to the oil price.”

Stofberg said that oil prices should therefore not exceed $70 a barrel, and average at levels around $65.

“But these two factors, the international dollar price of crude oil, and the value of our rand, only make up the basic price of fuel in South Arica. The taxes levied on fuel in South Africa is far more concerning.”

Hike likely in March 

Any fuel tax hikes announced by Mboweni would only take effect from April.

However, motorists should still prepare for a petrol price in March, mid-month data from the Central Energy Fund shows.

The CEF data shows an under-recovery in prices across the board, expected to rise around 56 cents per litre for petrol, and 48 cents per litre for diesel.

While the mid-month data serves as a snapshot, the Department of Energy makes adjustments based on a review of the full period. Furthermore, the outlook can change significantly before month-end.

The mid-month prices provide a strong indication of moving trends. Prices are affected by two main components – the rand/dollar exchange rate, and the changes to international petroleum product costs, largely driven by oil prices.

As of mid-February, the ZAR/USD exchange rate is contributing to an over-recovery of around 12 cents per litre – however, rising international product prices are contributing to an under-recovery of around 70 and 60 cents per litre to the under-recovery for petrol and diesel, respectively, causing the deficit.

Main Image: eNCA

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