Surcharge Surprise

 7^th December 2007
The Malta Independent - Friday Wisdom

You can tell politicians are panicking when they start contradicting themselves, while pretending to be a shining light of consistency. This is exactly what the minister responsible for national energy supplies did this week, when he announced that the surcharge on utility bills was being frozen at 50 per cent for the period up to June 2008 – even though it should have gone up to 97 per cent – if the full impact of market spot pricing were to be passed through to the consumer.

One can well remember how the same minister, upon the introduction of the surcharge mechanism, had insisted that this should gradually move to market prices and should be adjusted every two months to reflect such price movements with punctuality.

From an economic point of view, this what classical teachings dictate. Subsidies act as a barrier to careful use of expensive resources, and will delay the structural adjustment needed in consumption patterns to reflect the high cost of energy.

When the opposition came out with an electoral proposal that they would half the surcharge, the minister insisted on arguing that the opposition’s proposal was economically treacherous, and that the opposition was not explaining how this expensive measure would be funded. You might agree or disagree with the policy, but at least the minister was being consistent.

Suddenly it seems that political convenience needs to take priority over good economic husbandry, and the minister announced that the government will, in fact, be subsidising the surcharge to the tune of 40 per cent, costing taxpayers some Lm40 million. This, without any explanation of how the subsidy will be funded.

How can one claim consistency and continue to criticise the opposition’s policies, while simultaneously adopting broadly similar policies as those one is criticising?

Failure to explain funding for this sudden conversion from conservative economic doctrine to socially oriented measures for a short period of time, padding a few months on either side of the coming election date, leaves observers with a clear impression that this is more a matter of temporary convenience rather than deep conviction.

This may be politically savvy, but for the informed and objective voter, a small but growing minority, this is political deceit by a government shifting its policies to try to retain its grip on power.

We need to face facts that energy prices have gone up, and one way or another these have to be passed down the line to consumers, to ensure that consumption patterns adjust to the reality of the market. Policies should not be made to fit elections. Polices should be consistent and totally shorn of political convenience.

So, by all means grant exemption to social cases (that are proven by reliable means) from the surcharge. But why on earth should the state subsidise those who consume energy beyond what is considered reasonable, for a fair standard of living?

I fully agree that in line with social policy objective there should be subsidization across product lines. So it makes sense to keep butane gas sold in cylinders subsidised, as this is used for basic cooking and heating, and gives little scope for excessive consumption. There is scope for subsidising utility consumption on a quota per person basis, but anything above the quota should, not only be charged the full market rates, but should be loaded with an extra charge to finance subsidies given to low consumers.

Only such measures would force excessive consumers, with a high standard of living showing their high level of income and wealth, to economise on resources by switching to more sustainable sources like solar heating.

I would also argue that prices of fuel at the pump should cross-subsidise basic utility rates. While in many cases, uses of water and electricity up to a certain quota per person, is inelastic to price movements, as they merely serve basic needs; consumption of fuel bought at the pump is much more elastic to price movements and carries a better dose of discretionary use.

Only by allowing fuel at the pump to carry the full brunt of international pricing, can we promote more use of shared or public transport leading to better traffic management, and ultimately to a better environment.

If we continue to tailor such important policies merely to suit election and political convenience, then the electorate should not be amazed if after the election surcharge freeze we could have a post-election surcharge surprise.