South Africa Cuts Fuel Tax Levy as Energy Costs Rise

The temporary measure is projected to cost 17 billion rand, or about $1 billion. It is scheduled to be halved in June and eliminated completely by July. The reduction follows a pattern seen with other government relief programs. The Social Relief of Distress grant was introduced in 2020 as a six-month pandemic measure.

It has since become a permanent 200-billion rand annual program, equivalent to more than a third of annual state spending on education. That grant has remained in place because underlying economic conditions, including low growth for more than a decade and unemployment above 30 percent, have not changed.

The program became a central part of the African National Congress strategy ahead of the 2024 national elections. It continues to play a role in the current coalition government in which the ANC is the largest party. The fuel tax levy reduction is expected to encounter similar political and economic pressures.

While allowing the tax suspension to end would be mechanically simpler than removing cash grants from 8.2 million recipients, the resulting fuel price increase in July is likely to affect household budgets. Real wages have shown little growth over the past five years, and low-income commuters can spend up to 40 percent of monthly income on transport.

Higher diesel prices would also raise costs for road freight and agricultural production. Local elections are scheduled in the coming months. The coalition government partners would need to approve the price changes.

The fuel tax measure has drawn attention to broader questions about subsidies and energy policy. A columnist for the Carnegie Endowment for International Peace stated that fossil fuel subsidies can hinder the shift to sustainable energy sources. The government has not announced a decision on whether the levy reduction will be extended beyond July.

The original plan called for the relief to end at that time.