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Fuel levy not a silver bullet for SA’s road funding challenges

Fuel levy not a silver bullet for SA’s road funding challenges

The fuel levy is a diminishing source of income for government due to technological advancements, and there are numerous concerns over how money currently derived from the levy is allocated and used.

This emerged during the third Transport Forum Working Group event - ‘Road Funding in South Africa - Feedback from Operators’ - held in Midrand, Johannesburg, last week.

Hosted by Electronic Toll Collection, the event was attended by a of mix of leaders in scientific research, self-regulation, road freight, freight forwarding and transport economics.

Currently, the fuel levy is the 4th highest income stream for government and provides over 5% of national tax revenue. Fuel levies also make up 70% of all road user generated income for the state.

“The fuel tax in itself is not enough to fund South Africa's roads at the moment. That's the reality,” said event moderator and economist, Mike Schüssler.

Schüssler explained that if the country were to double its current spend on roads and public transport and finance it through the fuel levy, the current fuel tax of R3.15 per litre of petrol would have to more than double to R7.50 per litre. This massively inflated figure excluded a contribution to the Road Accident Fund.

Dr Paul Nordengen, manager of network asset management systems at the CSIR, said while road funding is critical for the future of South Africa’s development, the fuel tax would not exist in the future.

He also took issue with how government allocates the funds it receives from the fuel levy.

“The ring fencing of roads is a decision made by national treasury. That decision was made several years ago. All money generated from fuel taxes goes into the pot. The advantage of toll fees is that that money is specifically used for roads,” Nordengen said.

He suggested that mass-distance and distance-only charges could be a way forward for heavy vehicles and passenger cars. Comparing road use to water, electricity and mobile data consumption, he said South Africans were prepared to pay for these basic services, yet didn't want to pay for roads.

He explained that interventions to reduce the demand for road funding included periodic maintenance and rehabilitation of vehicles; the movement of freight from road to rail; improved public transport; reductions in crashes, incident rates and breakdowns; the reduction of heavy vehicle overloading and the encouragement of road-friendly heavy vehicles.

Gavin Kelly, acting CEO of the Road Freight Association (RFA), said as soon as the country progressed to fully electric vehicles, the fuel levy would disappear. “Somewhere down the line, the fuel levy is going to decrease dramatically,” he warned.

“The fuel levy is feeding many other things, not just roads. The road funding method we need has to be ring fenced. If we are charging users of the roads, then the money taken from those users must go to roads, it cannot go to something else," he suggested.

Kelly explained that some provinces received an allocation to deal with their roads but didn't spend it on roads. Some provinces even give their road allocation funds back to treasury at the end of the year.

“The Department of Transport has tabled a Draft Bill to establish a Single Transport Economic Regulator,” Kelly continued.

“One of its functions is to try to ascertain how the money from the fuel levy is being spent, that it is spent correctly and that the levies being charged by various state-owned entities are just, valid and supported. One of those entities is SANRAL,” he explained.

Professor Stephan Krygsman from transport economics at Stellenbosch University, agreed with Kelly on the issue of allocation. “That is the biggest issue. Allocation is highly complex and the process lacks transparency,” he said.

“We should pay for roads. The question is how much and how to do it. Paying too much tax erodes development. He added that government is also proposing to introduce a Congestion Tax for South Africa.

“Applying the user pay principle does not guarantee fiscal neutrality. As used by government, it will lead to a funding deficit,” he cautioned.

Ms Olga Mashilo, a director at Boleng Bontle Consultants, said freight forwarders bemoaned the fact there is no comprehensive road funding policy. “The funding of roads should be beneficial to freight,” she said.

Ms Mashilo added that buses benefited from road funding through government subsidies, while other transport modes, like freight, do not. “Freight damage to the road network is compensated by its significant economic contribution,” she argued.

She said government could assist freight forwarders by creating a sustainable road freight infrastructure funding system. It could also achieve this through improved operator competence and skills development.

“The development of a freight management system should be considered to reduce the cost of inefficient road freight transport. Affiliation to regulatory bodies should also be minimised to ensure greater levels of compliance,” she said.

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