SA cuts Road Accident Fund liability by R305bn

The RAF adopted a new accounting treatment for social benefits in the place of the insurance contract approach previously used.
Image: Waldo Swiegers/Bloomberg

South Africa’s government said the liability of the debt-stricken Road Accident Fund, which compensates vehicle-accident victims, has been reduced by more than 90% as a result of an accounting change.

The RAF adopted a new accounting treatment for social benefits in the place of the insurance contract approach previously used, Transport Minister Fikile Mbalula said in an emailed statement. This resulted in a decrease of the fund’s reported liability by R305 billion , bringing the RAF liability to R28 billion and the net liability position to R13.5 billion, he said.

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Prior to the change the fund’s debts were the government’s biggest contingent liability after those of state power utility Eskom Holdings SOC Ltd., Mbalula said. The RAF is financed by a levy on fuel that equates to almost 13% of the retail price, but its expenses have outstripped its income for years and it is technically insolvent.

The fund has merely altered the way it calculates its potential liabilities, but its underlying financial position remains largely unchanged, according to Dawie Roodt, chief economist at Efficient Group in Pretoria. The adjustment will however enable the government to reduce its contingent liabilities and credit ratings companies will then have to decide whether those numbers are credible, he said.

The RAF posted a R3.2 billion surplus in the year through March, the first time it hasn’t reported an annual deficit in four decades, according to Mbalula. The adjustment to the liabilities has been independently reviewed by accounting firm PwC, the minister said.

The National Treasury and RAF didn’t immediately respond to questions.

Other highlights from the statement:

  • “Following an investigation into the claims liability, which at the reporting period ended on 31 March 2020 was R330 billion, the RAF came to the conclusion that applying International Financial Reporting Standards 4 insurance contracts standard to the social benefit activities is not resulting in reliable and relevant information,” Mbalula said.
  • The RAF collects R43 billion a year through the fuel levy, 60% of which is spent on compensating victims, 25% on legal fees and the balance on other administrative costs.
  • Administrative costs fell by R7 billion in the year through March, while finance costs dropped by 62% to R90 million.
  • The fund’s short-term liabilities were reduced to R14.8 billion, from R17 billion, while current assets rose by more than R4 billion.
© 2021 Bloomberg

COMMENTS   13

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This just shows what can be done with the correct leadership.

I am referring to the President Ramaphosa good leadership.

At last!

Improvement but a long way to go!

So by the stroke of a pen the liabilities simply vanish?
Can we now do the same for ESKOM, SAA and SANRAL please?

Lol u mean cooking the books…..

The ANC specialises in massive corruption and waste, and is too economically incompetent to run the economy well enough to fund the latter malfeasance via revenue. So it funds it via debt. Therefore, these claims of a generational turnaround at the RAF and the wiping away of hundreds of billions in debt at the stroke of a pen certainly get one’s attention.

It’s almost like that time SANRAL magicked its way out of technical insolvency by dint of fantasy revaluations of the national road network.

This article would have been more informative had Dawie Roodt been asked for detailed comment on how credible the Treasury and DoT statements are and why the previous approach was adopted in the first place.

The public deserves proof that this is legitimate, and not just an election-year accounting fiddle which shifts the liabilities to some other corner of the tax base.

Wow this is an all time low. Lets just fire the actuaries and ask the accountants to consider claims paid, and ignore all those in the process of settlement, not yet reported or those we have committed pay.
How can media who are supposed to hold government to account accept this utter garbage?

The fact that all of a sudden the RAF makes a surplus for the 1st time in 40 years, just because someone chose a different way of accounting, seems too good to be true. According to the SA Gov website, Mr Fikile Mbalula is trained in Leadership Skills by the Careers Research and Information Centre, and as a Councillor by the Organisation for Appropriate Social Services in South Africa in psychotherapy. I, therefore, fear that what he understands from financial statements and IFRS 4 in particular, may be minimal.

Accounting standards are the modern-day philosophers’ stone that turns manure into gold, or in Steinhof’s case, gold into manure.

The change from mark-to-market accounting rules to mark-to-book value, also called mark-to-fantasy, saved the entire global financial system from systemic collapse in 2009. A run on the banks and total economic catastrophe was sidestepped by the stroke of a pen. Scary hey?!

Hah! Never scoff a journal entry again! Witness its power!

Amazing. I assume this also means Eskom is profitable and SA makes the most accounting profit in the world. I’m also a trillionaire in Zim Dollars

So does this mean the fuel levy is now grossly over-recovering for the fund? Will the man on the street see a huge decrease of the fuel price at the pump?

Knowing how blatantly corrupt the ANC government is, nothing will change. Give it some time – some ANC Cadre / Minister will become a billionaire from this sudden fiscal windfall.

End of comments.

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