Simply Reducing Petrol Price Won't Reduce Poverty, Warns Expert

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The cost of fuel increased significantly during the first six months of 2022. While the cost is expected to decline in the coming months, experts say proposed government fuel relief interventions may not make a significant difference for South Africa’s most vulnerable citizens.

 


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In July the price of 95 octane petrol reached R26,31c per litre. This was the highest motorists ever had to pay for petrol in the country. The fuel price is determined by several factors, however, the geopolitical conflict in Ukraine saw prices of oil surge during the first six months of 2022.

Many groups have called on the government to intervene and help shield the public from price increases. Some have suggested that the government introduce a fuel levy subsidy to help lower the cost of fuel.

Professor Heinrich Bohlmann says the success of a fuel levy subsidy would be determined by how well it is targeted. However, this would have to be carefully considered by the government.

Any subsidy introduction will have to be paid for through other means. This could result in tax increases in other parts of the economy and could even lead to increasing inequality and poverty in the country.

“If that's not a well-designed system that's well targeted, our research shows that it ultimately worsens inequality and the poverty problem. Whilst it might reduce the cost of petrol itself, those other metrics in terms of inequality and poverty tend to worsen even more on top of what the general [fuel] price increase would have done” explained Bohlmann.

They say in the interim while these target solutions are being investigated, the structure of the current petrol price must be examined. This will help determine if and where the public can get better value for their money. 

where are the areas where we can get better bang for our buck right where is for example the petrol price formula hurting us as consumers

Bohlmann says stakeholders must develop good technologies that allow for targeted policy responses. This would be a better solution than simply introducing a subsidy that would have to be paid for through tax increases.

 

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