Reintroducing fuel levy relief ‘will come at a cost’ for Treasury

There may be hopes and calls for government to reintroduce fuel price relief by reducing levies for a few months amid record diesel and petrol prices, but this may be problematic and send the wrong message at a time National Treasury is trying to get SA into a stronger fiscal position.

That’s the general sentiment expressed by economists from CitiBank and PSG Financial Services*, *speaking to Moneyweb this week, ahead of Finance Minister Enoch Godongwana tabling the 2026 Medium-Term Budget Policy Statement (MTBPS) on Wednesday.

With Treasury already having given three months’ worth of fuel levy relief earlier this year – in the wake of the Middle East conflict sparking a global spiral of oil prices – the move has already ‘cost’ the fiscus R17.2 billion in forgone revenue.

“There may be space to reduce the fuel levy for a couple of months, but it will come at a cost,” warns Gina Schoeman of Citi.

“But we don’t want to create a habit or expectation of such a move [whenever fuel prices spike],” she says.

“There is no doubt consumers will be feeling the pinch, but a larger part of SA’s high fuel prices is also linked to refining margins, due to the lack of oil refinery capacity in the country [and the need to import refined fuel],” she adds.

Schoeman highlights an investor note Citi put out last week ahead of the MTBPS that the SA government is likely to see a windfall in tax takings of up to R80 billion by the end of this fiscal year (FY2026/27).

“We think it is possible, but it is also not prudent to ‘bank’ that now due to uncertainty in global markets…

“National Treasury is likely to be more cautious in their tax overrun estimates in the MTBPS, probably around R40 billion to R50 billion,” says Schoeman.

She adds that this may offer room for interim fuel relief to be announced on Wednesday, but Treasury will be cognisant and committed to fiscal consolidation first.

In a separate note earlier this month, Johann Els, chief economist at PSG Financial Services, said there is “uncertainty around the potential for further fuel levy relief” and cited the allocation by government from April to June.

“There is certainly room in the tax windfall for some form of fuel price relief in the 2026 MTBPS, but arguing against it is that they have already spent R17 billion earlier this year,” he told Moneyweb on Monday in response to queries.

“You will also have to weigh this against potentially fixing the fiscal position – getting SA a lower budget deficit and easing the debt-to-GDP ratio quicker, which can get us quicker ratings upgrades, than spending it all,” adds Els.

“The potential benefits of credit ratings upgrades is far bigger for the greater economy than just for those consumers who spend money on petrol.

“There are arguments for both sides around fuel levy relief or not, but I tend to [believe] they may err on the side of caution and not give any fuel price relief.”

On Monday, President Cyril Ramaphosa hinted at possible fuel price relief coming in the mid-term budget speech.

Several political parties, unions and other organisations – including ActionSA, Cosatu and the AA – have called for the fuel levy to at least temporarily be reduced again to help cushion the blow on consumers and businesses, especially ahead of the festive season.

While the DA earlier this year pushed for the interim fuel levy relief, this time it is calling for a more sustainable longer-term solution for lower fuel costs for motorists.

“Our view is that one of the primary issues to address is to reduce the Road Accident Fund [RAF] levy, alongside urgent reform of the RAF, which offers a practical way forward,” the DA’s Kingsley Wakelin tells Moneyweb.

“Motorists should not continue carrying the burden of a system without government addressing its underlying financial and operational problems,” he adds.

“As far as the RAF is concerned, we all agree that we need better financial management, faster and fairer claims processing, stronger action against fraud, and accountability for how the fund uses its money.

“It is important that if we want to reduce any levy, that the reduction must be properly costed and designed to protect legitimate claimants while delivering real relief to motorists. As the DA we want a solution that is affordable, sustainable and backed by meaningful reform – not another temporary measure that leaves the underlying problem unresolved,” says Wakelin.

“When we supported the previous fuel levy reduction, our understanding was that the pressure on fuel prices was largely temporary and that temporary relief was an appropriate response.

“However, with the ongoing war in the Middle East and the uncertainty it creates for global oil prices and fuel supply, we need to reassess whether temporary fuel levy reductions remain the most sustainable solution.”

This article was republished from Moneyweb. Read the original here.