The Impact of a Higher Fuel Levy on the Western Cape

The Western Cape Provincial Government's proposal to introduce a provincial fuel levy within a band of 10 and 50 cents per litre raises concerns on the impact this may have on the economy, especially at a time of high international oil prices. This study reports the results of a computable general equilibrium (CGE) analysis of the impact of higher tax rates on petroleum products on the economy, with specific focus on prices, employment and household expenditure. The results show that increasing the tax rate on petroleum products results in higher petroleum prices, which again put upward pressure on intermediate input costs. Households in the Western Cape will experience a decrease in per capita expenditure, as unemployment increases and returns to factors employed decrease. The impact is however very small. The impacts on agricultural activities differ among regions, but the net effect is a contraction in agricultural output.