3 Subsidies on petrol

The Cost of Petrol Subsidies

       Subsidy is the donation of funds for certain purposes. If the allocated money was spent on something else, payment must be returned. The subsidy may be released under the equity financing. Intensive development of energy, industry and transport inevitably causes an increase in fuel consumption. Subsidies for oil continue to grow. But worldwide reducing subsidies can be benefit to protect the environment and provide the necessary   fiscal space.

      

        Subsidy on petroleum products has increased over the past few years. In 2003, the global volume of subsidies to consumers of oil products reached nearly 60 billion U.S. dollars. By mid-2008, they have increased more than eight-fold to 520 billion U.S. dollars. With the rapid growth of international fuel prices during this period, many governments have chosen not to fully reflect this increase in domestic retail prices, which led to an increase in subsidies. Although the second half of 2008, subsidies were sharply reduced as a result of lower oil prices, they again grew throughout 2009, as oil prices have played a fall, and by the end of 2010, subsidies reached nearly 250 billion U.S. dollars. However, the true sizes of the subsidy of the economy even more. 

       In principle, the price of oil should include taxes, both to meet the needs of the state in income, and to repair damage to the environment on a national and global scale. If taxes are too low, it creates a "tax subsidy" for consumers. Based on the reference level of tax U.S. $ 0.30, with a particular view of these considerations, it is projected that by the end of 2012, the global amount of subsidies to consumers to reach 740 billion U.S. dollars, equivalent to 1 percentage of the global gross domestic product (GDP).

Who subsidizes?

        All pre-tax subsidies granted in emerging market and developing countries, but developed economies account for a large share of the volume of subsidies including tax. Of the total pre-tax subsidies, is 250 billion dollars to the share of emerging markets account for 65 percentage, while the share of developing countries - the other 35 percentage. A tax included in the $ 740 billion subsidies emerging markets account for 57 percentage, 20 percentage in developing countries, while the remaining 23 per cent of the country with a developed economy.

How does subsidization help a country?

            Many countries, provides support from the budget to mitigate the effects of the global economic crisis, are now experiencing the growth of budget deficit.

Halving subsidies including tax would reduce the average projected budget deficit in the country providing subsidies by 1 percentage of GDP. In addition, establishing the limit subsidies could bring significant benefits to the environment: reducing subsidies by half could reduce emissions of greenhouse gases by about 10 percentage in 2050. However, the removal of subsidies, even at their low targeting, can seriously degrade the poor households. Real alternative would be transfers, addressed to needs. For example, countries could eliminate subsidies on gasoline, while maintaining subsidies for kerosene, which is essential for the budgets of poor households. Also part of the budget savings from reducing subsidies could be spent on existing programs, more help to the poor, including food for schoolchildren, school fees and medical services and cash transfers. Improving the structure of social protection programs over time can reduce the need to subsidize fuel. Information campaigns for the public needs to be emphasized that fuel subsidies are inefficient, contrary to social justice and low-cost. 

 
Reference: 

http://www.imf.org/external/pubs/ft/spn/2010/spn1005.pdf