The fuel subsidy is a national scourge. It distorts the market, reduces export earnings, strains the national budget, encourages overconsumption, promotes corruption and hurts the environment. It undermines development and it is an ineffective way to distribute the national fossil-fuel windfall. There is really very little to say in favour of it.
The International Monetary Fund minces no words about the fuel subsidy. In 2013 it called it "particularly difficult to justify," and in 2014 it said: "Fuel subsidies are extremely costly and inequitable, starving the government of resources that could be better targeted towards poverty reduction."
The resource diverted towards the fuel subsidy is a staggering $6 billion, about ten per cent of the national budget. That is more or less equal to the budget deficit and more than the Government allocates towards health ($4.4 billion), education ($4.3 billion) or national security ($3.1 billion).
International studies suggest the rich are the main beneficiaries. The wealthiest 20 per cent of the population receive between 38 and 44 per cent of fuel subsidies. The poorest 20 per cent only receive between six and nine per cent.If these figures hold true for T&T then a quick back-of-a-napkin calculation shows that the 80,000 households that constitute the top 20 per cent each benefit by between $22,500 and $33,000 per year.
That is more than some people make in a year! The bottom 20 per cent receives a measly $4,500 to $6,750 per year. Put this into context: a minimum-wager makes $15 per hour, about $28,800 per year. It is a reverse Robin Hood subsidy, which takes from the poor and gives to the rich. With all these negatives you would think environmentalists, trade unionists, free-marketeers and the Minister of Finance would uproariously unite to repeal this wasteful, harmful subsidy. Instead they play ostrich politics.
The subject is too big to ignore, but many lobbyists and policymakers, worried about a backlash, fear engaging the public on what is thought to be an emotive subject. Using an online survey Web site I designed a questionnaire called T&T Fuel Subsidy.
A few things about the survey: it was only accessible online and it was only posted on the Papa Bois Conservation (PBC) Facebook page, which has just under 20,000 followers. PBC is a cross-section of T&T society, with some nuances. The average follower of PBC is probably somewhat better educated and higher-earning than the average Trinidadian or Tobagonian, and of course he or she has a presumed bias in favour of the environment.
Some of the questions asked/statements made:
�2 Do you own a motor vehicle? Yes: 84 per cent. No: 16 per cent.
�2 Fuel subsidies are good for the economy: Yes: 34 per cent. No: 49 per cent. Don't know: 17 per cent.
�2 Fuel subsidies are good for the environment: Yes: 2 per cent. No: 80 per cent. Makes no difference: 12 per cent. Don't know: 6 per cent.
�2 Government has allocated $7 billion per annum to the fuel subsidy. This amounts to $17,500 per household. What is true for your household?:
My household contributes more to the fuel subsidy than it receives: 67 per cent. My household receives more than it contributes: 33 per cent.
�2 The poor benefit more from the fuel subsidy than the rich: Disagree: 52 per cent. Neither disagree nor agree: 18 per cent. Agree: 29 per cent.
�2 (Take special note of this one, politicians!) I would not vote for a government that reduces the fuel subsidy: Disagree: 56 per cent. Neither disagree nor agree: 21 per cent. Agree: 23 per cent.
�2 If T&T does away with the fuel subsidy there will be social unrest: Disagree: 29 per cent. Neither disagree nor agree: 23 per cent. Agree: 48 per cent.
It appears the irrational voter is not so irrational after all. A majority would not punish a political party for fuel-subsidy reform. At the same time, 48 per cent are certain that there will be social unrest.
Fuel-subsidy reform needs to start with an effective and targeted communication campaign to build a public case for fossil-fuel reform. People are the same everywhere: if they do not know, they cannot care. Education is key. The subsidy should be phased out gradually, let's say over five years. During that time a fully comprehensive transport policy can be planned and implemented.
There will be protest. Even though the bottom 20 per cent receives the smallest share of the subsidy pie, these are society's most vulnerable. Sudden price increases can result in real hardship. Insulating the poorest from shock to their finances can contain this. This can be done by targeted cash transfers, or by subsidising the maxi-taxi and taxi system.
A cash transfer is preferable because it provides the consumer with choice, cutting out inefficiency. Gentle doctors make festering wounds. Reform the haemorrhaging fuel subsidy on our own terms, before the IMF makes us do it on theirs.