Tiisetso’s view
South Africa has stumbled into a classic policy trap.
The government last month slashed the fuel tax levy. On paper, it’s a self-correcting fiscal intervention that will cost 17 billion rand ($1 billion), ostensibly a temporary measure, designed to halve in June and vanish completely by July. But here in South Africa, there is nothing quite so permanent as a temporary government relief measure. Once you subsidize survival, you cannot simply turn off the tap, and expect nobody to notice.
To understand the trap the state has just walked into, look at the Social Relief of Distress grant authorities instituted in 2020 as a fleeting, six-month pandemic stopgap. It has since morphed into an immovable 200-billion rand ($12-billion) pillar of the national social wage, equivalent to more than a third of what the state spends on education in a single year.
South Africa couldn’t revoke the payout because the underlying disease — an economy that has hardly grown for more than a decade alongside unemployment at more than 30% — was never cured. Instead, the grant became the cornerstone of the African National Congress’ survival strategy leading into the highly contested 2024 national elections, and remains vital now within the coalition government of which the ANC is the biggest party.
The fuel levy suspension is hurtling toward the exact same political brick wall.
Sure, mechanically speaking, letting the suspension expire is easier than taking cash out of the hands of 8.2 million COVID-era grant beneficiaries. But the economic shock of a sudden price jump at the pumps in July will be brutal. South African wages have barely grown in real terms over the last five years, and the typical low-income commuter already surrenders up to 40% of their monthly income to the minibus tax, while increases to the price of diesel will cascade into road freight and farm production.
The idea that fragile multiparty coalition partners will willingly orchestrate record high fuel and food prices just months before voters head to the polls in local elections is fiscal fantasy.
Notable
- Fossil fuel subsidies derail the transition toward a sustainable energy future, argued a columnist for the Carnegie Endowment for International Peace.