Cash subsidies not forever

Two years have passed since the cash subsidy system for oil derivatives was applied. Perhaps it is high time to put an end to it. After all, cash subsidies are the exception, they are not permanent. They have to be terminated at one time or other, and the sooner the better.

The government  should have specified the duration of the practice from the outset, otherwise we would have the relation between the state and the people upside down; it is not normal to see governments pay (taxes) to the people instead of collecting taxes from them to finance the state and its economic, social security services. 

During the past two years, consumers have absorbed the new prices of fuel and adjusted their behaviour accordingly. The cash subsidy became no more than a grant that some people collect once every four months. It no longer has any relation to fuel. Suffice it, for the time being, that cooking gas is still subsidised by more than JD3 per cylinder.  

A cash subsidy is only a lubricant, a way to pass difficult decisions without causing a shock. The decision has already been passed and become a fact of life. There are no more reasons to let cash subsidies go on indefinitely.  

Fortunately, the government is expected to reduce fuel prices by the end of this month, following the substantial reduction in global prices of petroleum. This will create the right opportunity to declare the end of fuel cash subsidy.

At bare minimum the government can reduce the three annual cash payments to two, thus saving one third of the cost, but only for one year as a transitional period. It is worth noting that the prime minister had declared in advance that the direct cash support to ease the effect of lifting fuel subsidies could be stopped if prices of crude oil drop below $100 per barrel. This price is now at several months’ record low.

All forms of subsidies create distortions in the economy and markets. In most, if not all, cases the harm exceeds all benefits. By the way, the Treasury has no surplus funds in its budget, which means that the government has to borrow in order to be able to pay the subsidy. This, obviously, is a very exceptional and unhealthy state of affairs that should not be allowed to go on forever.

Jordan was successful in the case of oil derivatives, where prices are now determined monthly in accordance with the worldwide prices of petroleum.

If the government is really willing and financially able to support the poor, then it has only to direct more money to the National Aid Fund, where cash disbursements to underprivileged families do not cause economic distortions.

The acceptable method worldwide of helping the poor and reducing inequality in wealth and income is to concentrate efforts and devote more resources for education and training. Education can raise the standards of living of the poor and open opportunities for progress.