Fuel levy funds insolvent RAF
THE Road Accident Fund has not been solvent for 34 years, which is why South African motorists have to pay 50c per litre more as a fuel levy to pay the RAF’s bills.
But it will hardly make a dent in the R90-billion deficit the fund faces.
The RAF acts as an insurance scheme for South African road users — paying out funeral, medical and loss of earnings expenses incurred in road accidents.
The average claim is R104 000, although loss of earnings claims can range between R650 000 and R700 000.
The fund also pays an average of R11 000 per person for burial costs for about 7 300 people per year — about half the number of people who die on South African roads annually.
A new report tabled in parliament this week, prepared by the Financial Services Board, puts into sharp perspective just how unsustainable the current system is.
The liquidity ratio contained in the report is 0.21:1. In other words, the fund has only 21c of assets for every R1 of its liabilities.
“The RAF does not have sufficient cash or near cash assets to cover its short-term liabilities,” the report states.
Dr Eugene Watson, CEO of the fund, said it had not been solvent since 1981.
This was primarily because all claims, even those listed for payment in the future, are contained in the balance sheet.
Its only source of revenue is the fuel levy, which will now total R1.54 of every litre of fuel sold — translating to an additional R10-billion every year.
Last year, claims paid out outstripped the R20-billion revenue by R2-billion.
“The reason the fund has been able to continue operating is because the levy has been generally sufficient to cover the claims,” Watson said.
But with a R90-billion deficit, this is the most insolvent the entity has ever been.
It means that the backlog of claims — 279 912 at the begin- ning of last year, along with new claims — cannot conceivably all be paid out.
Last month, Finance Minister Nhlanhla Nene hiked the fuel levy by 84c, with 50c of this going towards the fund.
Watson said this would help, but he is under no illusions about the sustainability of the fund.
Nene said the new Road Ac- cident Benefit Scheme Bill, which is expected to be tabled in parliament this year, will go a long way in addressing this, and making the system more accessible.