PM says fuel cap will cost taxpayers

When he spoke during his Budget presentation PM Stephenson King said government could not afford reductions in revenue.

Prime Minister Stephenson King’s 2011/2012 Budget Presentation has come under heavy scrutiny from all sectors of the St Lucian society.  Perhaps one of the more unavoidable issues facing the present administration is the highly volatile crude oil prices on the world market and its effect on the pockets of the populace.  Prior to the address members of the public took to the airwaves in anticipation of some inkling of relief from the burdensome price at the pumps.
That relief was not as forthcoming as some would have hoped.  During his presentation, King announced a further EC$5 subsidy on the 20lb LPG gas cylinder, bringing government’s subsidy total to EC$15.  This was as far as the government was willing to compromise.
Said King in his presentation, “Any policy decision made by the government has implications; whether it is translated to reductions in revenue, increases in expenditure, higher public debt or distortions in prices. Placing a cap on fuel prices, given the escalating import prices, would result in a dismantling of the pass-through mechanism and expose government to indeterminate losses of revenue. Significantly lower revenue could result in government cutting its expenditure and/or having to increase borrowing to finance the deficit. Government can ill afford significant reductions in revenue at this time, given the tremendous pressures in providing resources to fight crime, rebuild the battered infrastructure after Hurricane Tomas, provide the social safety nets necessary for the poor and vulnerable and strengthen provisions, in particular, areas such as healthcare.”
Opposition Leader Dr Kenny Anthony for his part condemned the prime minister for those statements saying if government reduced the EC$3.67 consumption tax on fuel, it will cushion the repercussions of rising prices on consumers.  Anthony proposed reducing the tax to EC$2 and reviewing prices every three months as opposed to the monthly evaluations currently in place.
Independent Senator and former president of the Petroleum Dealers Association Everistus Jn Marie echoed Anthony’s sentiments.  He told the Senate that government subsidies on fuel will cause a strain on the economy.   He called the subsidy on the 20lb cylinder of gas an “ill conceived policy.”  He proposed government collects EC$2 on every gallon.  Also, he believes the 35 percent government tax on fuel needs to be reduced and instead of prices fluctuating on a monthly basis, prices should be reviewed every three months.
On Wednesday evening King addressed the nation on fuel prices that came into effect on Monday May 9. King noted that he has been monitoring international and domestic developments in the fuel sector over a few months.
As a result of his observations, King noted, “I have also observed that additional price hikes during the period used for calculating the price of fuel at the pump, would have resulted in a further price increase to consumers this month. After careful consideration, government has decided to keep the prices of gasoline and diesel unchanged at $15.38 and $15.57 a gallon, respectively for a period of one month effective Monday May 9, 2011, to be reviewed each month thereafter. This was achieved by reducing the excise tax on gasoline from $3.00 to $1.90 a gallon and diesel from $3.00 to $2.53 a gallon.”
King says the decision to keep the prices stable was taken at a time when despite the fact that during the March 28 to April 22 period, prices in gasoline increased by 13.4 percent and diesel increased by 4.6 percent.  If government had not absorbed the cost of the rise, gasoline and diesel would be $16.48 and $16.04 per gallon respectively.
Further, King emphasized that the reduction on the excise tax on fuel is temporary and is in no way any indication of a policy to cap fuel prices. “The pass-through mechanism still remains in effect but, within that mechanism, government has reduced the excise tax for that period only (that is, for the four-week period commencing May 09).”  The next adjustment date is June 6.
King warned that this month’s fuel cap will have serious consequences on the island.
He said, “These price adjustments will come at a cost to taxpayers and the country as a whole, as government will have to reduce some of its capital programmes or effect other budgetary adjustments to cover the revenue loss
due to the increase in subsidy and reduction in excise tax.”

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