Sunday Times STLive By Matthew Lester , 2012-03-25

Count our lucky stars, but brace for costly fuel

Matthew Lester
Image: Business Times

Two aspects of the recent budget speech have not received due praise.

Everyone groaned about the increase in capital gains tax inclusion rates from 25% for individual taxpayers and 66.67% for companies and others. And there were few cheers for the increase in the primary residence allowance from R1.5-million to R2-million.

Perhaps that's because we have not seen any real growth in residential property prices in the past three years.

How much capital gain must a taxpayer make on the disposal of a primary residence to be worse off after the amendment? The answer is R3.5-million. There won't be many.

Years ago, when Maria Ramos was head of the national Treasury, the call was made that fuel taxes should comprise 35% of the price at the pump. So, with fuel prices around R11 a litre, that would be around R3.85 a litre. And pre-budget, the fuel levy was at R2.61 for petrol and R2.67 for diesel.

Finance Minister Pravin Gordhan could have ruled that fuel taxes are a tax on carbon emissions. But he didn't - instead opting for a very conservative 28c a litre increase, effective from April 1 2012. He has too much of a heart to hammer all South Africans, poor and rich, with the inflationary effects of a massive fuel tax increase.

I shudder to think of the fuel price increase for April. That's when South Africans will feel the recent increase in oil prices to the $120-plus-a-barrel range. That will take the fuel price close to R12 a litre.

Much is being written about the effects of oil prices on US President Barack Obama's prospects of re-election in November. As the US economy rallies, so do oil prices.

And we have not even got close to the upward pressure on oil prices that often starts around August, when the northern hemisphere starts to stock up for winter.

Then add in the inevitable increases associated with refinery and transport, and I predict that South Africa will be paying R14 a litre by Christmas! (But the tax component will be contained at about 20%, very conservative by world standards.)

The environmentalists want carbon emission taxes ASAP. But while energy prices skyrocket, I think the legislation will have to stay on the back burner.

  • Lester is a professor at the Rhodes Business School, Grahamstown. For more, see www.criticalthought.co.za.