Editorial
Money for nothing
Philippine Daily Inquirer
First Posted 00:50:00 06/18/2008
Even as China struggles with the aftereffects of an earthquake, massive floods have occurred in the heartland of its industries. The United States struggles with flooding that’s going to have an effect on wheat and soybean production.
Our region is tense. From South Korea to Thailand, massive public protests over issues of governance have besieged governments. Even Singapore has launched a renewed crackdown on oppositionists, as the government gets needled on the price of food and proposals to restrict foreign workers which required elder statesman Lee Kwan Yew to weigh in on the issue.
But it is the price of oil that has caused the most tensions in economies more comfortable than ours. Action so far seems too little, too late. Saudi Arabia said it would increase oil production, but instead of helping to lower the price of oil, it went up—an indication, to some industry observers, of the killing being made by speculators.
The Asia Sentinel reports that governments have no choice but to confront their policies of subsidizing local oil consumption. It said: “If all the oil consuming nations of the world were to agree to do away with fuel oil subsidies completely, such an agreement alone would cause the oil futures bubble to burst, oil consumption would drop and the price of oil per barrel would go to US$40 (Idris Jala’s estimate) to US$65 (oil analyst’s estimate).”
Combined with the increasing price of food, the rising price of oil has led to rising inflation in the region.
If current subsidies are wrecking the budgets of governments in our region with far healthier fiscal situations than ours, their solution—to focus on more targeted subsidies—must also be taken in the context of these countries being better able to afford it.
In Indonesia, the government announced it would hand out 14.1 trillion rupiah ($1.52 billion) in cash handouts to about 19 million families. Relatively prosperous Taiwan slashed subsidies, too, and announced it will distribute $659 million to middle and low-income families.
In Malaysia, where the government reduced across-the-board fuel subsidies, gasoline prices increased by 41 percent and diesel went up by 63 percent. To fend off public resentment, the Malaysian government substituted targeted cash rebates for the subsidies: 625 ringgit ($191) for owners of cars with engines of less than 2,000 cc and 150 ringgit ($46) for motorcycle owners. The Malaysian government then said people could get their subsidies at post offices—and post offices were deluged with people. The government went further and announced it would channel the savings from across-the-board fuel subsidies to expanding public transportation and modernizing it.
Instead of pacifying the population, the Malaysian government’s policies have emboldened the opposition, which is gearing up for a massive rally on July 5. Now Prime Minister Abdullah Badawi is fighting for his political life.
On Tuesday, President Gloria Macapagal-Arroyo signed the new tax exemption law (which won’t offer any relief to the unemployed) that would cost the government around P8 billion yearly in lost revenue. Proposals to scrap the value-added tax (VAT) were rejected out of hand by the Palace, because if adopted, it would lead to P4 billion more in lost government revenue. Which, incidentally, means that the consumption of the unemployed will continue to be taxed, even as the number accorded tax relief is shrinking.
What is taking place before our eyes is the President embarking on spending like crazy to pacify Metro Manila. But she is doing so with an empty wallet. The VAT was expanded to meet the bulging debt of National Power Corp.; the strengthening of the peso freed up funds to spend on patronage and populist stunts. But the President cannot continue dipping into VAT revenue indefinitely, as the peso in turn has started to lose its value. All her energies are focused on short-term handouts, and there is not a word on longer-term solutions. As Ms Arroyo prepares to submit a new budget in July, what will be left to fund her centerpiece programs?
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