Running dry : assessing the fuel levy as a long term, economically efficient road use fund

Abstract

The fuel levy, a domestic transport cost component added to the basic fuel price, has long been South Africa?s main source of income to fund the construction and maintenance of roads as well as lend support to public transport (National Treasury, 2014b). During the 2012 / 2013 financial year the fuel levy contributed R40.4 billion to the National Revenue Fund administered by National Treasury (The Citizen, 2013). Of this amount, R17.6 billion (44.0%) and R19.9 billion (49.0%) were allocated to the road and public transport sectors respectively. Recent comments regarding the Gauteng Freeway Improvement Project (e-toll) has raised questions and strong opinions about the continuing use of the fuel levy as the main or only source of income from road users to fund land transport operations and infrastructure in South Africa. The aim of this paper is to assess if a review of the fuel levy is needed, and to be supplemented or replaced by a viable alternative, in order to secure a long term sustainable income source for the country?s aging transport road infrastructure. This paper will provide a historic overview of the South African fuel levy, from its origins in the 1920?s to the present day and will review the current demands on the fund. This will be followed by a comparison between the fuel levy in South Africa and other countries, including selected BRICS nations and selected European countries. Various societal trends will then be considered including alternative fuels, electrical and more fuel efficient vehicles and the impact of these trends on the fuel levy will be assessed. It was found through this assessment that alternative fuels, electrical and more fuel efficient vehicles have had an impact on the fuel levy whereby the registered vehicle population in South Africa grew with 47.2 % between the periods 2003 to 2012. For the same periods the vehicle kilometres driven by the registered vehicle population grew with 38.5 % while the fuel sales only grew by 21.9 %. This had a result where the fuel levy is losing productivity by experiencing declining revenues. The paper concludes that a review of the current fuel levy is needed, as increasing the fuel levy each year will only be a temporary solution. An alternative financing mechanism must be implemented that is not affected by societal trends.