Of Subsidies and Sound Policies

Manila Bulletin, May 9, 2011 | Go to article overview

Of Subsidies and Sound Policies


MANILA, Philippines -- As of this writing, the government has started distributing the Pantawid Pasada smart cards to some 3,000 jeepney drivers nationwide. This is in line with the Public Transportation Assistance Program-Pantawid Pasada (PTAP) created through Executive Order No. 32.

The Pantawid Pasada Program aims to "provide targeted relief to the public transport sector to cushion the impact of high fuel prices on the riding and consuming public." A load of P1,050 is allotted per card that the owner (jeepney/tricycle driver) can use to cope with high fuel prices.

Knowing how the public reacts to government policies, it came as no surprise that there are groups and individuals who do not see the PTAP as the most feasible solution to the problem.

Such is the case for the Pina g k a i s ang Samahan ng Tsuper at Operators Nationwide (PISTON), which was very vocal about how the government should have implemented a six-month moratorium on the 12 percent VAT instead-a measure that government officials and some experts are obviously not keen about.

Although I am also not sold on the VAT suspension (we are bound to lose a big chunk of revenues should that happen), I have my reservations about this subsidy. True, subsidies can assist the public in dealing with the soaring prices of commodities, in this case the high prices of oil products. On the other hand, I believe that subsidies are not the only way and definitely not the best way to deal with these problems.

Subsidies as Short-term Solutions

According to Global Subsidies Initiative, subsidies are said to be "powerful instruments which can play legitimate roles in securing public goods that would otherwise remain beyond reach." Yet at the same time, subsidies can only offer a short-term solution to the problem and if not properly thought of, can actually create another unwanted repercussion.

The seemingly endless fluctuations of oil prices are not just the result of the ongoing conflicts among Middle Eastern and North African countries (which are the major producers of oil products). We must face the fact that the world is changing-population is booming, and as more and more people occupy our planet, the demand for basic needs increase while the supply decreases. According to experts, the world has already "breached the threshold peak oil," implying that "the more readily available half of the world's existing resources of oil have already been extracted." Breaching the threshold would mean that it would be more difficult and expensive to extract the remaining half of resources.

By now, we know that the high cost of oil greatly affects the basic delivery of services to the public, especially the poor. When oil companies announce a price hike on oil products, everyone and everything is affected, from the transport sector to the commuting public, to the prices of commodities. It's a domino effect that has always plagued the government.

Sound Policies

The fuel subsidy as a way to "cushion the impact of high fuel prices on the riding and consuming public" is just that-a cushion, a shock absorber,a temporary relief to mitigate the adverse effect of the unstoppable increase of fuel prices. …

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