Freedom Front Plus
Freedom Front Plus

Government intervention in rising fuel prices: A good plan in the short term, but economic growth is the answer in long term

(FF Plus’s response to the Minister’s announcement regarding emergency fuel price intervention)

Fuel in South Africa is heavily taxed. Seeing as businesses and households cannot do without it, there are no real alternatives, and it is relatively easy to administrate the levies, fuel is a soft target for taxation.

However, the Minister of Finance today announced relief that all consumers will most probably welcome. In the FF Plus's view, these extraordinary circumstances must be used to establish a better fuel dispensation.

Although it is easy to tax fuel, it remains controversial. It puts a lot of pressure on the poorest people in society and it simultaneously reduces the competitiveness of South African businesses. So, everyone in the country suffers as a result.

The FF Plus, among others, recently insisted that the government must review the pricing formula for liquid fuel.

At present, the price is calculated on the premise that all fuel is imported in its final form, which is obviously not the case. This calculation increases the country's vulnerability to fluctuations in the exchange rate.

In this regard, it is important to note that the main cause of the increases in fuel prices over the last two decades is not higher crude oil prices, but a drop in the value of the rand.

To increase the rand's value, the economy must not be approached as if it is a loaf of bread that must be divided so that everyone has an equal piece, but rather something that must grow so that everyone can have enough. If that happens, less rands will be needed to buy a gallon of oil.

Relief for two months, financed by selling a portion of the country's strategic oil reserves, was announced today.

During this time, more permanent plans must be made, and the FF Plus hopes that it will indeed be an improvement. For instance, the temptation to impose a new levy to build new refineries to replace the country's outdated fleet must be resisted.

Internationally, there is currently a transition from petrol and diesel to electricity and hydrogen. Several years of development are still needed before it will be an everyday reality, but it does already influence in which assets long-term investments ought to be made.

Selling the strategic oil reserves is indeed risky. It is like a dam whose water must only be used during droughts, but one never knows for how long the drought will last before it is over.

One can, for instance, expect that the war in Eastern Europe will not have a lasting impact on the oil price.

The impact of poor economic growth on the rand as well as the impact of the new, emerging transport dispensation is more permanent in nature and must determine in what to invest.

There is an expression that says “Never let a good crisis go to waste”. And in this crisis, it seems that the government is following that sound advice.



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