Fuel price: Selling strategic reserves a desperate move for a government that has run out of ideas

31 March 2022

Note to editors: Below is the response by the DA Shadow Minister of Finance, Dr Dion George MP, to Finance Minister Enoch Godongwana's relief measures for the fuel price, delivered in Parliament this afternoon.

For a number of years, the question hanging over our heads has been: “What happens when government runs out of money?”

Government doesn’t have any money of its own, it all belongs to the people, and year after year, SCOPA hears how billions of rands have been irregularly spent, wastefully spent, or simply stolen. And there is never any consequence. Nobody is held to account and nobody goes to jail.

Yesterday, the DA proposed a motion of no confidence in the President’s cabinet, precisely because our economy has been mismanaged to the point of collapse, where we are unable to attract investment capital because there is no confidence, unemployment levels hit a record 35% in the last quarter and youth unemployment is at 65%.

Poverty continues to ruin the lives and future potential of more and more South Africans, every day. We face a cost of living crisis with skyrocketing food prices, driven largely, but not only, by the upward spiral in the fuel price.

The fuel price has been too high for too long because of government’s economic mismanagement. And this has crowded out opportunities for economic growth that we will never get back again.

The fuel price consists of four elements: the basic fuel price; taxes and levies; retail and wholesale margins and storage and distribution costs. The price of crude oil and the exchange rate impacts heavily on the price.

We don’t have much control over the price of crude oil although we certainly made an enormous mistake when the ANC government chose the side of Russia in its illegal war against Ukraine. The war has impacted negatively on the price of crude oil and when countries such as South Africa do not add value in bringing the war to an end, we actually do pay the price of more expensive fuel.

The ANC government’s disgraceful behaviour at the United Nations just served to make life more difficult for everyone in South Africa and just served to drive more people into poverty.

If government was actually concerned about the oil price and how it impacted on all South Africans, it would join the rest of the world in doing everything possible to stop the War.

Although the dollar-rand exchange rate is subject to market vagaries, it is possible to make our currency more attractive on the markets by ensuring that South Africa is an attractive investment destination. In that way, foreign investors in particular would want to purchase rands for investment and increase its value.

The DA has previously called on government to reduce the fuel levy and that could result in a reduction in the petrol price in the region of 20%. This would take pressure off rising food and transport prices and bring immediate relief to the poor. The petrol price in South Africa is higher than it is in Swaziland, Mozambique, Botswana, Tanzania, Namibia and Kenya because the fuel levy in South Africa is too high. It is too high because government relies heavily on it to fund its mismanagement of the public finances, at 6% of revenue. Bad government is making all South Africans poorer.

Social grants are set to increase by 4.5% in April. But electricity and fuel prices are set to go up by more than double that in April. Electricity prices by 9.6% and fuel prices by 11%. Food prices have increased by 5.7% in the past year according to Stats SA and that will gather momentum this year.

Cutting the fuel levy will create fiscal pressure that can be alleviated in many ways. The root cause of our dire fiscal situation is bad policy, incompetence and corruption. There are much better ways to deal with these than taxing the poor.

South Africa can no longer delay tackling our problems at their root. We need to grow tax revenue and jobs by rapidly reforming our economy to be open and competitive. We need to make better use of tax revenue by appointing public officials on merit and jailing corrupt officials. The benefits would accrue rapidly.

The Minister’s proposal to liquidate a portion of the strategic crude oil reserves for very short term relief is high risk and reckless. The purpose of holding a reserve is to ensure that South Africa does not run out of fuel during an emergency situation that is not easy to foresee. It was not long ago that an attempt was made to sell our strategic oil reserves under the guise of a “stock rotation” that was nothing more than a corrupt attempt to enrich a connected few. We need far more detail on what this transaction would entail and how the reserves will be replenished, and at what price.

If we are to take a short term view, and not make the structural reforms that would eliminate or reduce the high fuel tax, then we should look at funding this short term intervention with additional revenue that will be received as a result of the uptick in commodity prices that will temporarily increase tax revenue. We do have that temporary fiscal space.

We welcomed President Ramaphosa’s acknowledgement in his state of the nation address that business must be the job creator in South Africa. The incapable state is certainly unable to do that. We welcomed the Minister’s statements at his budget speech of what he intends to do about the State Owned Enterprises and managing the public sector wage bill.

Structural reform is the only way to grow our economy and avoid the significant risks that the Minister is now incurring. We are all agreed that the fuel price is too high and that immediate relief is needed. We just differ on how.

We support the suspension of the general fuel levy. Selling the strategic reserves is a desperate move for a government that has run out of ideas.

It is possible to reduce the fuel tax immediately, without selling our reserves, it just requires political will to do what will need to be done anyway.

We all know what happens when government runs out of money – it is forced to change its behaviour. If not, the people will remove you.

Issued by Dion George, DA Shadow Minister of Finance, 1 April 2022