Fuel-hike to fund RAF?

The chairperson notes in the RAF annual report tabled at parliament that the benefits that were being paid out - to victims of motor vehicle accidents - were "very generous".

"To process these claims, funds will be required either from the government or the public through increased fuel prices which will add to the cost of the national logistics system," she said.

The RAF's deficit at the end of the financial year 2005/06 of R18.37bn was down nearly R1.5bn from the previous year mainly because of a government R2.5bn injection, according to the fund's annual report which has been tabled at parliament.

The report - also issued in the name of chief executive officer Jacob Modise - states that the net result before the provision of outstanding claims "has for a number of years shown a deficit indicating that the fuel levy has not been sufficient to even cover the funds required by claims payouts and operational expenses".

The report notes that some 94 000 claimants received cash benefit payments of more than R2.1bn at an average of R22 600 a claim in 2005/06.

Hope that claims decrease

The report expressed the hope that through the RAF Amendment Act passed last year, the claims should decrease as claims would only be paid to victims that have sustained "serious injuries".

Also in the 2006 financial year, 6 500 claims were paid out for loss of earnings - to the tune of R1bn and an average of R155 000 rand per claim, while about 2 700 claimants received loss of support benefits of R332m - an average of about R125 000 per claim.

About 71 000 claims received R355m at an average of R5 000 per claim while about 128 000 received more than R800m at an average of R6 250.

Legal costs amounted to R520m for 50 000 payouts at an average of R10 500 per claim.

Meanwhile the fund's deficit has grown from R11.1bn in 2002 to a peak of R19.86bn in 2005 - only dropping slightly in 2006.

The report notes that by the end of March this year, there was a backlog of 446 000 claims, up from 347 742 in 2005 and 216 648 in 2002.

'Urgent action required'

The chairperson noted that: "Urgent action will be required to stem the outflow through legislative intervention that will limit the benefits to a level that South African society can afford and will contribute to the government's social and economic objectives set out in the Accelerated and Shared Growth Initiative for South Africa."

She said that draft regulations published for comment relating to the RAF Act of 2005 were of concern.

"To be specific, serious injury has been defined so broadly that very little reduction is expected in the over R2bn paid in general damages in the current financial year alone.

"The largest class of compensation paid by the RAF is general damages. Estimated by an independent actuary appointed by the RAF indicate that claims incurred will increase materially if the regulations are published in the current form," said Baloyi.

The regulations also included the removal of a R25 000 rand limitation on passenger claims.

This would cause the number of claims to increase materially due to the fact that a large volume of claims had been limited by this provision, the report said.

Revenue derived through levies on petrol and diesel

The proposed introduction of a R160 000 limitation to loss of income and support would only lead to a marginal reduction of claims incurred because the bulk of those claiming loss of income were already below this threshold.

Revenue for the fund is largely derived through levies on petrol and diesel. This stood at 31.5c/litre for both petrol and diesel in the 2005/06 financial year.

However, the claims expenditure including the increase in the provision for outstanding claims continued to outstrip "quite significantly", according to the report, the RAF's income from the fuel levy.

Revenue rose from R4.6bn in 2005 to R8.1bn in 2006 - including the R2.5bn rand from the State while net fuel levies amounted to 5.55 billion rand in 2006 up from R4.56bn the previous year.

Expenses, however, rose in this time from R5.9bn in 2005 to R6.64bn.

This translated into a operating surplus of R1.49bn in 2006 from an operating deficit of R1.29bn in 2005.