Brace yourself for tougher times
As temperatures plummeted across the county this week, fuel prices hit record highs of R16.02 for a litre of 95-octane petrol in Gauteng.
Taxi fares and the cost of basic foodstuffs are also expected to rise as a result. But beyond appealing to manufacturers and service providers to hold off on increases, there is no immediate plan for the government to help hard-hit consumers.
“We are going through the most difficult fiscal phase of South Africa,” Deputy Finance Minister Mondli Gungubele told the Mail & Guardian.
The ANC has called for a decrease in the fuel levy and Gungubele and his party colleagues will also have to defend their decision to increase VAT to their alliance partners in the South African Communist Party and Cosatu on Monday.
The fuel price increase comes on the back of other high-profile hikes weighing on consumers, including the VAT increase to 15% earlier this year.
These increases, Gungubele said, are meant to address the shortfall in government coffers.
“Remember, the situation we are in in South Africa is of such a nature that our fiscal situation has been dealt a serious blow by the recent past. So, to correct it urgently, you need taxation that can quickly make cash available to improve liquidity,” said Gungubele.
The South African Revenue Service is still reeling from an unseemly civil war that sees its suspended chief, Tom Moyane, fighting off charges of wrecking the institution amid declining revenue collection.
State capture allegations have also significantly damaged confidence in the economy. State-owned enterprises like Eskom and Denel, as well as public broadcaster the SABC and national carrier SAA, have all required huge sums of money to plug the gaps left by years of mismanagement.
Meanwhile, the public is restless. The economy has not grown enough for new jobs to be created, leaving young South Africans particularly disenfranchised. In the post-Jacob Zuma era, the government has been left scrambling to come up with an anticipated budget shortfall of R180‑billion for this year.
President Cyril Ramaphosa this week implored food producers and retailers to delay increasing the price of consumer goods, saying the government would look at ways to “ameliorate the difficulties people are going through”.
He insisted, however, that there was little the government can do to intervene in the price of fuel. He explained that as a net importer of oil, South Africa “are price takers; we don’t make the price”.
“The solutions are not going to be easy to find. As I said, we are in the end subject to what happens in the international community with the dollar/rand exchange rate as well as the price of oil. We feel for our people and we are going to be trying to find ways in which we can soften this blow,” said Ramaphosa.
According to economists, there are a number of factors at play, not least of which are rising administered prices — or the prices that are determined by the government.
Administered prices have risen 6.2%, according to the most recent consumer price inflation data for the month of May from Statistics South Africa. This is noticeably higher than the overall figure for inflation, which is 4.4%.
According to Stanlib chief economist Kevin Lings, taxes, levies and margins now make up about R8.52 of the total petrol price, or half of what you pay at the pump, and the cost of the actual fuel is R7.50 a litre.
The largest component of these administered prices is the fuel levy, which accounts for R3.37 a litre.
The deputy minister of finance believes, however, that the government’s options are severely restricted.
“Our fiscal situation is so bad, the government has limited options to ensure that we support the expansive side of the economy. That means the future of South Africa as we speak now depends a lot on the economy growing,” he said.
“That’s why there is a strong reluctance on further increasing the corporate tax, because we need to actually collaborate with them [the private sector] in taking initiatives that turn the economy around. If you recklessly increase their tax, you are reducing their investment capacity. That’s why we are walking carefully insofar as the corporate tax is concerned,” said Gungubele.
The reluctance to increase corporate tax will face severe scrutiny as South Africans are expected to fork out more.
According to Dr Iraj Abedian, chief executive of Pan-African Investment and Research Services, “governments the world over take between 30% and 60% of fuel pump prices in the form of taxes and levies”.
It is an easy, low-cost tax to collect, it is fairly predictable and is relatively “hidden”, he said.
“South Africa is not an exception, nor is it yet at the upper end of the range,” said Abedian.
But South Africa’s economic make- up, its poverty profile and the spatial legacy of apartheid means that the brunt of any fuel increase, as well as any tax on fuel, falls disproportionately on working-class and poor people, said Abedian.
All the items consumed by this group are on the receiving end of the fuel price increases, he said.
Even if consumer price inflation stayed within the targeted range of between 3% and 6%, food prices, particularly those of basic and subsistence items such as mealie meal, were likely to increase dramatically, said Abedian.
The list of zero-rated items — or basic essential goods that are exempt from VAT — remains unchanged for now, with the finance ministry’s team tasked with considering expanding the list having only recently been assembled.
Political parties have been quick to latch on to the general unhappiness around the economy, with even the ANC asking the government to decrease the fuel levy.
ANC head of economic transformation Enoch Godongwana said calls by the opposition to suspend fuel levies were politically motivated, as the country was heading for elections next year.
“The very same people who put us here are the first people who want to accuse us. Even Cyril is blamed for VAT when the budget we are dealing with [from earlier this year] is Zuma’s budget,” said Godongwana.
He dismissed as untrue suggestions that poor South Africans would be hardest hit by the high fuel price.
“That’s a silly suggestion. The poor in South Africa are [covered]. Firstly, [the government] provides free houses for the poor and secondly, [they get] free basic services.
“Throughout the distortion, all these things are not taken into consideration. People hide behind the poor,” said Godongwana.