Economist suggests ‘floating fuel tax’ to ease pain of rising fuel prices

There may be a way to mitigate the impact of fluctuating fuel prices.

Economist Frederick Mitchell has proposed a floating fuel tax, including the Road Accident Fund levy and the general fuel levy, that would automatically adjust with the fuel price.

When the price of fuel increases, the tax is decreased, and vice versa.

“If the oil price goes lower, the government gets more in terms of taxes, and if the price goes up, they get less. The tax will then act as a shock absorber to the economy.”   

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Mitchell said this proposal could potentially make it easier for consumers to cope with the rising costs.

"If 80% of your freight is transported via road and diesel is the main component in the transport costs, it means that it is definitely going to have an inflationary impact on the economy."

He acknowledged that the Finance Minister and Treasury would need to consider the budget implications of such a system.

"What's more important, your budget considerations for the year, that you get from fuel, or is it more price stability that you want in the market?

"Because in the end, if you have price stability and you get inflation rates that are at 3%, it makes the borrowing costs overall lower because your bond yields respond to your inflation expectations.”

RELATED: Temporary R3 fuel levy cut raises long-term economic questions

To listen to Mitchell in conversation with Africa Melane (in for CapeTalk’s John Maytham), use the audio player below: