President Cyril Ramaphosa on Friday announced that the government would unveil the measures to ease the burden of the price increases, including the finalisation of the VAT exempt products.
“I will ask the ministers in the economic cluster to finalise the package in a matter of two weeks,” said Ramaphosa.
Recent back-to-back increases in fuel prices have seen the inland petrol price climb to more than R16 a litre. The surge in fuel prices poses a major risk to inflation, because petrol is a substantial component of the Consumer Price Index basket.
The record fuel prices have also elicited a consumer backlash, hence the apparent scramble for solutions. The ANC last week said the government should freeze fuel hikes, saying the increases had become “unbearable”. The ANC said the government should do more to lessen the pain of the fuel hikes on consumers.
In a statement on Friday, ministers in the economic cluster said that they had discussed possible solutions to the fuel price increases at a special meeting on Thursday.
“The meeting resolved that the mandate of the VAT commission could be expanded to include the fuel price issues,” they said. They said businesses, especially retailers and food processors, should hold back on increasing prices.
The ministers said that the South African government would appeal to oil producing countries to moderate their stance on oil production cuts “as this hurts the global economic growth prospects, and in particular is detrimental to all developing countries”.
The fuel price increases have sharply exposed the susceptibility of local fuel prices to external factors such as the prevailing global crude oil price and the exchange rate.
The ministers said that the country should finalise the framework for the exploration and production of oil and gas through the Minerals and Petroleum Resources Development Act. “This will encourage oil and gas exploration in the territorial waters of the country, which in the long run will benefit oil and gas consumers,” they said.
Notwithstanding the pressure to curb the fuel prices, the government had little room to manoeuvre, according to South African Institute of Race Relations (IRR) chief economist Ian Cruickshanks. Cruickshanks on Friday said there was little that the government could do. “They cannot bring down the price of oil,” he said.
Cruickshanks said reducing fuel taxes was also not an easy way out either, because the government would have to make up for the lost revenue.
“Increasing the tax rate is not an option. That is high already. They also cannot increase tax on new vehicles, because it will slow down vehicle sales. There are just not too many solutions. They will have to take with one hand and give with the other,” he said. He said government's focus should be on growing the economy and job creation in order to broaden the pool of revenue.
KC African Economics economist Gerrit van Rooyen on Friday said that the government could reduce the retail profit margin, a component of the fuel price, which he said had grown at twice the rate of inflation per year over the past five years. “It could possibly be lowered, although that would of course anger fuel pump station owners,” said Van Rooyen.
The retail profit margin is determined on the basis of the actual costs incurred by the service station operator in selling petrol. It takes into account costs such as rental, interest, labour and overheads.
He said the government could also cut the portion going to the Road Accident Fund (RAF), “which is already heavily indebted and beyond saving”. The RAF levy had also almost doubled over the past five years, he said.