Fuel Subsidies

With fuel prices skyrocketing, GMA is thinking of subsidizing it to ease the call of transport sector for another fare-hike.  While rice subsidies is a good idea, and is being continued by the government through the selling of NFA rice at Php18.75/kilo, I’m not really sure about subsidizing fuel (gasoline and diesel).  Does the government really need to do this?  Can the government really spend that much for this new idea?  As Valerino Sy puts it in his Philequity column in The Philippine Star last Wednesday.

Studies have also shown that most oil subsidies benefit less the people that they were intended for: the poor. Cheap fuel benefits most those who drive the biggest and most inefficient cars, namely the rich. Even targeted subsidies can end up with the wrong hands. Many countries subsidize kerosene, since the poor often cook with it, but so do lots of well-to-do restaurateurs.

In addition, since petroleum products are easy to store and transport, petroleum subsidies also encourage smuggling (to neighboring countries for resale at higher prices) as governments of Iran, Iraq, Venezuela, Nigeria, Kazakhtsan, Indonesia, Malaysia, and Vietnam can attest.

To make matters worst, artificially low prices encourage waste & traffic congestion and provide disincentives to fuel efficient vehicles.

According to a recent news, the vehicles on the street lowered compared to last year.  This may be a sign that individuals tends to use the public transportation than inefficiently using their cars and SUVs when going to work.  I’m not saying that the government shouldn’t do anything about the fuel problem, in all means they must.  But instead of subsidizing it, why not fund oil and natural gas explorations?  Why not give more incentives to renewable gas users and even Filipino inventors who are being alloted Php4M per year thru DOST?  While other countries are investing greatly on Science and Technology to lessen the effects of fuel surges, our government is thinking of short-term solutions in dealing with the problem.  In the same column,

The government is said to be contemplating the P2 per liter subsidy and is looking at spending P3 billion per quarter to provide assistance to the transport sector and prevent another round of fare increase.

 

Short-term gain, long-term pain

 

While other Asian countries are slowly phasing out fuel subsidies, the Philippines is considering to introduce them. We have to be very careful, however, about giving them away. The taxpayers, of course, will eventually foot all these bills.

Meanwhile, growing public debt puts upward pressure on interest rates which raises the cost of doing business and reduces the capital available to more productive borrowers. In addition, fiscal underperformance will likely depress the Philippine peso, making imported fuel more expensive, and feeding the inflation the subsidies are supposed to curb. In the long run, these could cause more damage than high oil prices.

Once again the our government is thinking backwards and I cannot help myself by sigh.  Oh well, Madam Economist, you should do better than this!

To view the entire column of Mr. Valerino Sy, click this http://www.yehey.com/finance/vc3.aspx?id=218208&p=1 

*Oil rigs photo lifted from www.vnf.com