Godongwana announces temporary cut in fuel levy: 'A good investment despite cost to govt', says economist

Finance Minister Enoch Godongwana has announced a temporary cut to the general fuel levy, to help cushion South Africans against the impact of massive petrol and diesel price hikes that set in on 1 April.

Government is reducing the levy by R3 per litre, in consultation with the Department of Mineral and Petroleum Resources, to ease pressure on consumers while maintaining a stable fuel supply as the conflict in the Middle East drives up oil prices.

RELATED: Godongwana announces temporary R3 fuel levy cut to ease consumer pressure

Effective from 1 April until 5 May 2026, the levy on petrol will drop from R4.10 to R1.10 per litre, while diesel will decrease from R3.93 to 93 cents per litre.

It's estimated that the partial reduction in the fuel levy will cost the government around R6 billion in foregone tax revenue for the one-month period, National Treasury said in a joint statement.

The relief measure will be reevaluated on a monthly basis for the following two months.

Stephen Grootes gets comment from Sanisha Packirisamy, Group Economist at Momentum.

"That cut in the fuel levy brings the overall increase for your 95 inland petrol to R3.96 a litre, and for the purest form of diesl to R7.51 a litre."

"Remember that with diesel, these prices are unregulated so there can still be a retailer and wholesaler margin applied to that which of course then is a further drag on consumers pockets."

Packirisamy considers this R6 billion a "reasonably good investment" by government from the fiscal side, in view of the inflation outlook.

"This is given that it does prevent that inflation spike from peaking at an even higher rate, and then of course that alleviates the pressure on the monetary policy side as we see fiscal policy work hand in hand with monetary policy."

She compares the relief being offered now to measures implemented in 2022 with Russia's invasion of Ukraine which also saw oil prices picking up, when the fuel levy reduction was a much lower R1.50 per litre.

"At that point fiscal measures were looking a lot poorer than they are today... Consider the February Budget with the corporate tax revenue received on assumptions for future corporate tax revenues looking quite healthy. We also have a contingency reserve that's baked into the Budget, so there is a little bit of leeway for government to in fact spend on that R3 per litre levy reduction."

To hear more from Packirisamy on the temporary fuel levy reduction, listen to the interview audio at the top of the article