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SA’s woeful petrol price hikes – a short, eloquent history

If you think South Africa’s sky-high petrol prices are merely adjustments to the international crude oil market, you’d only be half right. They’re actually globally high because government is milking it in fuel taxes, an easy target along with sin taxes on tobacco and alcohol and most recently, a unique VAT increase. The latest fuel hikes put SA fuel at the highest it’s ever been, on average 2,8% per litre higher this year than the previous high in 2013. Don’t just think you’re paying, on rough, conservative average about R100 per tank more. It’s going to hit the economy so badly that the Reserve Bank is unlikely to make any further interest rate cuts, while the price of goods and services increases with no relief in sight. No prizes for guessing why the government needs so much money – the previous lot stole and/or squandered billions which are now needed to bail out dysfunctional and gutted State-Owned-Enterprises – not to mention helping create jobs and widen (restore in many cases), State services. The true cost of corruption and dysfunctional government is analogous to carrying a huge bond – you end up paying through your back teeth for a very long time.

Ah how we wish it was 2009 again

The line graph below shows the monthly price of 95 Octane fuel for at the Reef as well as coastal prices. Now readers might be wondering why those staying at the coast are paying less for fuel than those staying inland. Well most of SA’s crude oil and petroleum refining capacity is at the coast, close to where crude oil is delivered. Think the massive refining capacity in Durban, which is also the port where most of SA’s crude oil is delivered too.

Now to get the refined fuel to the reef (or inland areas) it is piped up to storage facilities and depots from where fuel trucks then deliver it to fueling stations. This all costs money. Thus the difference between the coastal price and the reef price is due to increased transportation costs in getting the fuel to consumers.

As the line graph above shows South Africans sure had a good time of it towards the end of 2008 and most of 2009. This was due to the financial crisis that hit the US and spread across the world like a wild fire, causing oil prices to plummet and the result was massively reduced fuel prices in South Africa. While all of this was happening the South African government has kept increasing taxes on fuel, as a easy way to get more into state coffers to fund governments spending.

But due to governments mismanagement of funds and corruption and wasteful expenditure, the state spending bill keeps increasing and the only way yo fund this is to keep raising taxes, and this is what were are seeing currently. Eventually just milking the fuel taxes (and the “sin taxes” such as taxes on tobacco and cigarettes and alcohol) wasn’t enough. Government had to increase VAT from 14% to 15% to to try and boost their state coffers. All of this while failing state owned entities (SOE) receive billions in bail outs (Think SAA).

The point we are trying to make with the above is that South African fuel prices would have been substantially lower if there was less corruption and more efficient spending by the state, which in turn would have meant more money in consumer pockets to spend, greater spending leading to greater economic growth (and funny enough this is what the state needs to increase their tax base and tax revenues).

According to well respected economist Mike Schussler, South Africans are some of the highest taxed individuals in the world. See this relatively old , yet relevant article for more: Click Here for article

The bar chart below shows the average price paid per litre of fuel per year in South Africa from 2008.

The bar chart above clearly shows that in 2018, we are paying record prices for 95 Octane fuel for both coastal regions and at the reef. The previous record prices paid for a litre of fuel in a year was in 2013 when the average price per litre was sitting at R13.96 a litre at the reef, while the current average price paid per litre of 95 Octane fuel at the reef in 2018 is sitting at R14.35 a litre.

It doesn’t just beat the old record, it smashes it. On average we are paying 2.8% more per litre of fuel in 2018 than what we did in 2013, which was the last time we saw record high fuel prices. Bad for consumer spending, bad for inflation, bad for interest rates in South Africa and just plain bad for South Africa’s economy and its growth (or lack thereof).

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