Fuel Prices & Subsidies

The rise in the price of refined petroleum products has seen many call for action by the government to ease the price pressure. This has ranged from the removal of the fuel excise to a reduction in GST. The forum may be interested to see the response from other countries, especially those providing subsidies. Perhaps it could be argued that the removal of excise in Australia would amount to a subsidy.

Price may well serve to ration usage and this has been one of the problems in Asia and the sub-continent. Many of these countries subsidise fuel and this has insulated consumers in those countries from the spike higher in the price of oil and in turn refined petroleum products. There has been no incentive for them to rationalise fuel usage given the subsidies they receive.

India and Malaysia have just raised retail fuel prices joining a growing number of Asian nations no longer able to afford big subsidies in the face of record-breaking oil prices. Taiwan, Sri Lanka, Bangladesh and Indonesia are also reviewing subsidies.

India raised petrol and diesel prices by about 10 percent, cut taxes on oil imports and raised the price of cooking gas by 17 percent. Malaysia raised petrol prices by 41 percent and said it will start using global market rates for fuel in August to prevent subsidies from eating up a third of its budget.

The fact that these countries are removing fuel subsidies will be a good thing for the rest of the world as it may reduce demand and ease the upward price pressure on oil.