Rishi Sunak is expected to cut fuel duty by at least 5p and is considering lifting tens of thousands of low earners out of paying national insurance altogether to help tackle the cost-of-living crisis.
France is also taking further action aimed at addressing the continued rise in fuel prices . “We are already protecting people in France with relation to gas prices," said Ecological Transition minister Barbara Pompili .
Why can’t we ?
Our fuel taxes are a tax on production as transport costs are an important element of the cost of production. Gasoline prices on the average over the past few years around the world show that our fuel prices are much higher than many of our competitive textile producers. Thus the fuel taxes are harming our industry’s competitiveness.
Moreover, fuel taxes are really just like another VAT that adversely affects the middle class and the poor. It increases the regressivity of our already unfair tax system impacting far more heavily on both the middle class and the poor. (The poor spend a larger portion of their income on driving than the rich do). It also has a trickle-down effect on inflation, higher fuel prices mean higher freight, and higher freight makes transportable goods more expensive thus driving up the prices of goods and services throughout the economy.
And a good chunk of the gains for the lower middle class and the poor via the populist measures of Minimum Wages , NIT and increase in the BRP have already been snatched away at the gas pump and by inflation.
So why can’t we reduce at least the excise duties and the other charges on petroleum ?
Because this regime's management of our public finances has been catastrophic. On the basis of our own estimates for Budget 2021-22, revenue may experience a shortfall of Rs 4 bn , expenses lower by some Rs 2 bn and capital expenditure by some Rs 6 bn. Thus the budget deficit will be lower by some Rs 4 bn; that is by -0.8% of GDP; the budget deficit may turn out around 4.2 % of GDP below the estimated 5%.
But if
- the Rs 8 bn of withdrawal of income from quasi corporations is considered as withdrawal of equity not revenue- Note: IMF GFS manual says that Funds withdrawn by liquidating large amounts of accumulated retained earnings or other reserves of the quasi-corporations are recorded as withdrawals from equity,
- expenses include the Rs 12 bn invested in Airport Holdings - a bail out like BAI, and not considered as equity and
- expenses also include other equity investments, especially Rs 2.4 bn in National Property Fund - continued BAI bail out.
the BUDGET DEFICIT SHOOTS UP TO MORE THAN -10% OF GDP.
(That will not necessarily raise debt by that amount ; on the contrary it will reduce debt. But, the underlying fiscal situation and our level of debt are not sustainable. We are among the top 5 African countries with the highest debt-to-GDP ratios.)
Please note that even if Govt is showing a limited budget deficit, excluding the above-mentioned items, in the current year by reaping revenue gains from taxation as consumption expenditures rise with inflation, this is likely to be short-lived. Govt expenditures are bound to increase in the coming financial years as a result of higher prices, but Govt will in the current budget try to ride on the delay between the inflation effects on govt revenue and expenditure.
As you see, Govt is doing everything, even manipulating the figures to ensure that its budget deficit and debt figures are on target, "sinon rotin bazar" from IMF and Moody’s….they have little choice; If they reduce the excise duties on petroleum, they will have to continue decreasing capital spending and raise taxes-increase VAT, introduce progressive taxes, a wealth tax and carry out some essential reforms on the expenses side...etc.
Will they have the guts to defy the 'Juncker Curse’ ?
"We all know what to do, but we don’t know how to get re-elected once we have done it."
(Jean-Claude Juncker, Prime Minister of Luxembourg and President of the Eurogroup. The Economist (2007), "The Quest for Prosperity", March 15th.)
Or is it more likely that some big populist policies/measures coming to fruition just in time for the election, given their recent efforts to build up a war chest -the commissions from Air Mts, housing and infrastructural projects and not to forget the off-budget special funds !!!
