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The Lowdown on the High Fuel Price

How much of it can we really blame on the price of oil?

Whenever fuel prices increase, most commentators are quick to blame factors which are out of our control:

"Trump is flirting with a trade war with Beijing."  

"The Fed is changing its outlook on interest rates."

"Italian economic woes could destabilise the Eurozone."

"OPEC have cut production to boost prices."

"Brexit."

Correctly, these things (and many, many others) do influence global conditions such as oil prices (which are expressed in dollars) and the Rand/dollar exchange rate. Over a long enough timeframe, our own behaviour (as a county) certainly influences the exchange rate, but on a month-to-month basis, exchange rates and oil prices are predominantly out of our control.

So when these things go against us - the oil price goes up and/or the dollar strengthens relative to the Rand - what we pay at the tank increases.

It’s very tempting to throw our collective hands up in the air, swear under our breath, and suck it up. But as a country, how much control do we really have over our fuel price? As it turns out, quite a lot, actually.

After the latest budget announcements, the total levies and taxes included in our fuel price amount to a staggering R5.59 per litre of petrol. As of March 2019, the price of 95 Octane is R14.82 per litre, which means the contribution of fuel levies to the total price is close to 40% of what we spend.

But before we panic in faux outrage, we have to make the concession that almost all countries have a fuel tax of some sort baked into their fuel prices. Fuel taxes are used for many things, including funding new roads and maintenance of existing road infrastructure. After all, what’s the point of tax-free fuel, if there are no decent roads to drive on?

That being said, we thought it would be worthwhile to take a look at how the fuel levies we pay have changed over time. To do this, we went back to early 2008. Back then, the total amount of levies and taxes we paid came to R1.73 and a half cent per litre (it was so low that they even used a half cent).  

Although the difference between then and now is R3.85 (and a half cent) and is over 200% higher - hold off on the outrage. We must concede that it is reasonable to assume that the levies charged by the government on our fuel price should grow in line with inflation. After all, the costs of maintaining roads should grow with inflation, so the money to do that also needs to grow.  

To take inflation into account, we looked up the annual consumer price inflation from back in 2008 to now, and we inflated the R1.73 (and a half cent) accordingly. Doing that got us to around R3.19 per litre in levies - an increase of about 84% over the period.  

We can now reasonably compare how the levies we pay today compared to the inflation-adjusted levies we paid back in 2008. And the difference is still staggering, coming in at a total of R2.40 per litre in levies we are paying more today.

So next time you’re filling your tank, just remember that about R120 of what you’re spending is because the levies chosen by the government have grown over time at a pace far outstripping inflation.  

Go ahead. You can be outraged now.


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