A new tax revolt led by the middle class is afoot. Last time it was e-tolls, this time it is the fuel levy. The DA and tax lobby group Outa want R1 lopped off the fuel levy to ease the burden of the rising oil price on the public.
This levy now stands at R3.37 a litre and the Road Accident Fund (RAF) levy (the old third party insurance payment), also linked to petrol sales, is at R1.93. This means that 38% of the price of petrol is taxes.
Because the basic fuel price has reached record levels, with 93 octane petrol at R15.80, the fuel levy is an easy target for opposition political parties.
It goes without saying that everyone, other than the super-rich, are feeling the pain, with the biggest burden on the poorest section of the population. The economy is also feeling the pain, with inflation ticking up.
The fuel levy is a significant source of state revenue, contributing 5.5% to the general revenue fund. In 2016-17 this amounted to R62.8bn. Cutting it by R1 would mean government would forego a third of this revenue.
The grounds for a tax revolt are legitimate. Fifteen years ago 78% of personal income tax was paid by 32% of taxpayers. Now 80% of all personal income tax is paid by 25.7% of taxpayers. While the tax burden on the middle class has grown tremendously, corruption and mismanagement has made them increasingly resentful. Not only must they pay for privatised services alongside their taxes, but their tax money is not being used effectively to uplift the poor.
Stagnant revenue despite rising tax rates shows that taxpayers are gatvol.
Can slashing the fuel levy lead to a solution to this problem?
The fuel levy is a significant source of state revenue, contributing 5.5% to the general revenue fund. In 2016-17 this amounted to R62.8bn. Cutting it by R1 would mean government would forego a third of this revenue. With the fiscus already under pressure — another R30bn must be found to pay for the above-inflation wage settlement — this is not a realistic or pragmatic scenario.
Leaving aside questions of wastage and corruption for now, the reality is that the Treasury would have to tap other sources, such as VAT or personal income tax. Neither prospect is really viable. Calling for a R1 cut is wishful thinking at best and opportunism at worst.
However, the focus on the fuel levy highlights several other problems. The first is the rate at which it has risen over the past 10 years. In every year except three, increases have been above inflation and in five of the 10 years in double digits.
So while the Treasury has been cautious not to raise VAT (other than this year) it has sneaked in some hefty increases in the fuel levy, which have gone mostly unnoticed. In this regard, the government has brought this revolt on itself.
As well as the fuel levy, sales of petrol and diesel are also taxed to fund the RAF, through which road accident victims can claim compensation. The RAF levy has also risen faster than inflation. In 2018 it went up by 18% and in 2014 it went up 48%.
The RAF is a blight on the country’s finances. It is corrupt, insolvent and has a massive actuarial liability of R189bn.
Because the fund compensates accident victims on the basis of lost earnings, the wealthy — most particularly wealthy foreigners with income in pounds or dollars — have scored millions in compensation. Low earners, who may have suffered exactly the same harm, have got very little. The biggest beneficiaries have been ambulance-chasing lawyers.
Plans to restructure the fund have been on the table for more than a decade, somehow never finding their way through Parliament, despite the growing crisis with the solvency of the fund. Although former judge Kathy Satchwell chaired a commission in 2003 that proposed a new system, the proposed bill is still before Parliament 15 years later.
All in all, taxpayers are being asked to pay more each year for government failure, wastage and corruption. A more concerted clean-up of government is urgent. A capable state must be reconstructed or taxpayers will continue their not-so-silent revolt.