Fuel Levy & Taxes
It is impossible to discuss the funding of public infrastructure projects without discussing taxes and an overview of funding.
Countries, like households, face a similar limitation. In the literature it’s called the economic problem; unlimited wants and needs and limited resources. Simply put, this means that we can’t have everything we want because someone else may have a greater need.
South Africa has an additional problem. In 1994 as a country, we emerged from a system declared by the United Nations as a crime against humanity. For decades the white government had used the money and provided sub-standard or a low share to the black majority. The South African government is committed to equity and is required to ensure that budget allocations take this into account. The provision of water, an essential for life, is required in poor rural areas before building an urban road in an economically advanced hub. It thus stands to reason that the taxes collected are allocated to the projects with the greatest priority first.
Let’s consider this for a moment. We all share space in a ‘low middle income country’ where contextually a third of our people earn less than R700 a month and use public transport or walk. Why should they pay for a service they do not use? This is why economists globally support the user-pay system: it illustrates a commitment to ensuring that the resources available are allocated to where they will have the most positive effect.
What about our taxes and the fuel levy? Why tolls too?
This is a typically misleading argument which is being used to derail the user-pays discussion.
Answered simply, the fuel levy is a tax on fuel. Tolls are the collection of a fee for the use of an asset. The user and their usage are identified to the collection agency and funding is applied directly.
A fuel levy is a tax. It is possible to ring-fence where the tax goes, but not possible to identify usage. A useful example is that we know that the poor in South Africa live on less than R700 per month and use minibus taxis as their predominant transport service. Taxis and public transport don’t pay tolls, they are zero-rated, ensuring that the poor receive access to source work or receive medical treatment.
The fuel levy collects from the poor. This is simply not fair. Further, it’s also possible for the rich to ‘buy themselves out’ of the fuel levy with electrical, and to lesser extent, hybrid and more efficient motor vehicles.
Do you see the clear and vital difference between the fuel levy and e-tolls?
Within our media space we have seen the evidence of the considerable effort of the Department of Transport (DOT) estimating the effect of an increased fuel levy. This increase will bring an approximate increase of R3.65 per litre of petrol which will result in a negative ripple effect, impacting every South African, with a particularly devastating impact on our poor.
The fuel levy lacks a progressive component thus affecting every road user, including all public transport and emergency vehicles. Cars that never see the tar roads and those operating mowers and irrigation pumps are also forced to pay. It’s biased towards higher income users and increasing this tax will place a further burden on all South Africans. Simply put, an increase of the fuel levy will ensure that all of our country’s people, across all our provinces, will pay for roads in Gauteng that they simply never use.
e-toll, however, is a revenue generated by SANRAL which is ring-fenced for road maintenance and development only. Our current e-toll system has been modified to achieve two goals; one being to cap the service, reducing the financial burden on us as citizens and secondly; to ensure those who do not use the service do not pay, thus public transport and emergency services are zero-rated. Furthermore, the e-toll system contributes to reducing congestion and pollution.
Tolls collected are used only for the toll roads. If we want a road transport infrastructure that works, we need to pay our e-tolls.
The User-Pays Principle & Policy
Globally the user-pays principle is used as opposed to an increase in income tax. As the most equitable way to address the funding of large infrastructure issues, our Government remains committed to this principle as it’s the most efficient and effective way to ensure that the direct benefits of services are paid for only by those who use them.
(Read more about user-pays here)
The user-pays principle is adopted as a method of funding large infrastructure projects worldwide; it’s fair, efficient, targeted and considered best practice. It means exactly what it says, only the user-pays.
Wait! What about the 2010 World Cup?
There has been criticism about why the road upgrades were ‘free’ during the 2010 World Cup in SA and are now charged for. This was never the case: the roads were planned long before the World Cup and were already approved in 2006. Quite simply, upgrades in infrastructure were actioned in parallel to South Africa’s obligations in the hosting of this event. These roads were not funded by the World Cup. However, we agree, this ‘storm in a tea cup’ is as a result of a lack of effective communication with regards the eventual tolling of the roads that form part of the GFIP.