Government caps fuel price hike for September

In an unprecedented move that may cost the taxpayer about R300m, the government has intervened to limit September’s fuel price increases.

Petrol prices will increase 5c a litre on Wednesday, just a fifth of the maximum amount recommended by the Automobile Association (AA), the department of energy said on Monday.

The measure follows an urgent intervention by the minister, Jeff Radebe, and seeks to alleviate pressure on consumers hit by higher international prices and a weaker rand.

The move comes as the government, which is struggling to boost the economy and make a dent in a near 30% unemployment rate before the 2019 general elections, has come under pressure from groups including the DA and Organisation Undoing Tax Abuse (Outa) to alleviate the effect of record fuel prices on consumers.

For some economists, the intervention may dent the government’s credibility as it seeks to convince markets and credit agencies that it can get its finances under control.

It is less than a week since the release of data showing that in July the country recorded its biggest budget deficit since at least 2004.

TAX REVENUE

The fuel levy is the fourth biggest source of government income, contributing 5% of tax revenue.

“It’s not clear where the money is coming from,” said Efficient Group chief economist Dawie Roodt, who estimates that the one-off reprieve could cost R300m.

The move risks “sending out the message that if the likes of the DA and Outa make enough noise, government will bow to the pressure.

“You’re sending out a message that you’re a weak government,” he said.

The fuel price in SA is regulated and recalculated monthly according to movements in the rand and oil prices, and annual changes to taxes.

The price of diesel will stay unchanged in September, compared with the AA’s recommendation for a 31c rise.

The 5c increase in the petrol price is to cater for salary increases of forecourt attendants, cashiers and other administration staff, the department said. Radebe previously said he would look into ways to reduce fuel costs.

“It is unprecedented but the department of energy is responding to the brief they’ve been tasked by the president,” said economist Thabi Leoka.

This was a response to consumers complaining about the higher increases in various other areas, including fuel.

In July, President Cyril Ramaphosa said the government was planning interventions to mitigate the effect of record high fuel prices, which could crimp economic growth.

“This intervention won’t mitigate further increases,” Leoka said.

She questioned how the government would respond “if we continue to see an increase with the weakening of the rand”.