04th July 2008
The Malta Independent - Friday Wisdom
The Malta Independent - Friday Wisdom
This wee
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I was spoilt for choice of the wrong type. I had too many topics to write about
and this is quite unusual in summer when one is often forced to search through
subjects left on the shelf from the colder months.
France taking over of the EU presidency and Sarkozy’s diplomatic skills, or lack of them, in devising a solution out of the Irish stalemate for adoption of the Lisbon treaty and in handling the clash of policies with the European Central Bank headed by another Frenchman, deserves a column on its own.
So does the raving debate in local blogs about whether continuous complaints about lack of quality service at the emergency department of Mater Dei Hospital and the lengthening waiting list for non urgent surgery, result from undue expectations about what universally free medical service can actually deliver or whether we are seriously experiencing the law of diminishing returns where the more we put in the less we get out.
The White Paper about an overdue reform for property under rental arrangements dating prior to 1995 is obviously a very topical subject. At this stage I would just say that as a consultative document it makes a noble effort to unblock a situation which has been jammed for decades and which clearly lost much of its original social purpose. While tweaking and refining will be necessary to address some questionable measures proposed in the White Paper, there is no doubt that its general orientation is positive and laudable.
However, none of these topics can overcome the supremacy and immediacy of the government’s decision to practically double the surcharge on utility bills as well as to increase the retail price of fuel at the pump by about 10 per cent. As a result the final utility bill will essentially increase by 30 per cent ({100% + 95%}-{100%+50%}) that is three times the increase imposed upon prices of fuel at the pump.
Before entering into the merits of such spread of the burden of higher energy prices, let me make clear that no one should be under any illusion that there is any realistic way that the consumer can be shielded from the shattering effects of exploding energy prices. Direct across the board subsidies are both unaffordable as well as economically inappropriate.
Unless energy price increases are permitted to filter down to the consumer (both intermediate and final) we will never achieve the much-needed adjustment in demand for energy products. This demand has to adjust to take account that energy is expensive and that the international terms of trade have worsened, apparently in a structural manner, against energy consumers and in favour of energy exporters. The only feasible response for such an unsavoury reality is by becoming energy efficient and such efficiency cannot be delivered except through price mechanisms. We simply need to adjust our living habits to drive smaller cars, use public transport, economise on heating and air-conditioning, and keep lower stocks in the house to be able to switch off the second freezer.
On a longer-term basis we do of course need to invest in renewable energy sources, and this both at country and individual level, but this cannot deliver the needed immediacy of results if we change exaggerated habits like using air-conditioning to freeze the room rather than to acclimatise it.
Some made the argument that government will be benefiting from increased tax revenue by virtue of the ad valorem duties and VAT applicable on fatter energy prices and government should use the extra revenue to cushion the energy price increases.
Government seems to have adopted this suggestion when it declared that the surcharge without government intervention would have been 115 per cent rather than 95 per cent and the difference is being footed by government by increasing subsidies to Enemalta.
The concept of across the board subsidies gives me a headache. The very idea that the State should subsidise to any degree excessive users who can afford swimming pools, air-conditioning in every room, and lighting as if there is no tomorrow is an insult to my social conscience. It would be more appropriate to consider limiting the subsidised surcharge to a cap reflecting “normal” consumption per capita and apply full surcharge without any subsidy to excessive consumption.
The government should also consider channelling part of the extra income it nets from ad valorem taxes and VAT, as well as savings that can be made by economising on street lighting (switching off every alternate lamp is not so drastic in these acute times) by subsidising public transport to make it more appealing to commuters. It will help consumers to contain the impact of high energy costs, reduce importation of high cost energy products, ease traffic leading to more efficiency, and make a significant contribution to a better environment.
Which brings me to the question as to why prices of fuel at the pump were raised only one-third the prices of utilities. This could be partly explained by the fact that utility prices were not adjusted for some eight months during which period fuel prices underwent some relatively minor tweaking upwards. However the main reason is otherwise. The main reason is that for the way we measure inflation the changes in fuel prices have greater impact on the retail price index than changes in utility prices. And given that we still have mechanisms which transfers measured inflation into automatic wage increases, the government is extra careful to avoid agreeing pricing structures which stimulate measured inflation with the risk of igniting second round inflationary spiral.
Valid as this is in the current circumstances nothing changes the fact that this is like the tail wagging the dog. Real inflation probably goes up just as much, or even more, by utility price increases as by fuel price increases. If anything, utility usage is somewhat less sensitive to price changes than usage of fuel purchased at the pump. The reality is that we are carrying outdated legacy systems for quasi automatic wage increases triggered by measured inflation which are totally inappropriate for an economy struggling to preserve its competitiveness following its membership in a hard monetary union with a currency that by all economic measures is fundamentally overvalued.
k
I was spoilt for choice of the wrong type. I had too many topics to write about
and this is quite unusual in summer when one is often forced to search through
subjects left on the shelf from the colder months.France taking over of the EU presidency and Sarkozy’s diplomatic skills, or lack of them, in devising a solution out of the Irish stalemate for adoption of the Lisbon treaty and in handling the clash of policies with the European Central Bank headed by another Frenchman, deserves a column on its own.
So does the raving debate in local blogs about whether continuous complaints about lack of quality service at the emergency department of Mater Dei Hospital and the lengthening waiting list for non urgent surgery, result from undue expectations about what universally free medical service can actually deliver or whether we are seriously experiencing the law of diminishing returns where the more we put in the less we get out.
The White Paper about an overdue reform for property under rental arrangements dating prior to 1995 is obviously a very topical subject. At this stage I would just say that as a consultative document it makes a noble effort to unblock a situation which has been jammed for decades and which clearly lost much of its original social purpose. While tweaking and refining will be necessary to address some questionable measures proposed in the White Paper, there is no doubt that its general orientation is positive and laudable.
However, none of these topics can overcome the supremacy and immediacy of the government’s decision to practically double the surcharge on utility bills as well as to increase the retail price of fuel at the pump by about 10 per cent. As a result the final utility bill will essentially increase by 30 per cent ({100% + 95%}-{100%+50%}) that is three times the increase imposed upon prices of fuel at the pump.
Before entering into the merits of such spread of the burden of higher energy prices, let me make clear that no one should be under any illusion that there is any realistic way that the consumer can be shielded from the shattering effects of exploding energy prices. Direct across the board subsidies are both unaffordable as well as economically inappropriate.
Unless energy price increases are permitted to filter down to the consumer (both intermediate and final) we will never achieve the much-needed adjustment in demand for energy products. This demand has to adjust to take account that energy is expensive and that the international terms of trade have worsened, apparently in a structural manner, against energy consumers and in favour of energy exporters. The only feasible response for such an unsavoury reality is by becoming energy efficient and such efficiency cannot be delivered except through price mechanisms. We simply need to adjust our living habits to drive smaller cars, use public transport, economise on heating and air-conditioning, and keep lower stocks in the house to be able to switch off the second freezer.
On a longer-term basis we do of course need to invest in renewable energy sources, and this both at country and individual level, but this cannot deliver the needed immediacy of results if we change exaggerated habits like using air-conditioning to freeze the room rather than to acclimatise it.
Some made the argument that government will be benefiting from increased tax revenue by virtue of the ad valorem duties and VAT applicable on fatter energy prices and government should use the extra revenue to cushion the energy price increases.
Government seems to have adopted this suggestion when it declared that the surcharge without government intervention would have been 115 per cent rather than 95 per cent and the difference is being footed by government by increasing subsidies to Enemalta.
The concept of across the board subsidies gives me a headache. The very idea that the State should subsidise to any degree excessive users who can afford swimming pools, air-conditioning in every room, and lighting as if there is no tomorrow is an insult to my social conscience. It would be more appropriate to consider limiting the subsidised surcharge to a cap reflecting “normal” consumption per capita and apply full surcharge without any subsidy to excessive consumption.
The government should also consider channelling part of the extra income it nets from ad valorem taxes and VAT, as well as savings that can be made by economising on street lighting (switching off every alternate lamp is not so drastic in these acute times) by subsidising public transport to make it more appealing to commuters. It will help consumers to contain the impact of high energy costs, reduce importation of high cost energy products, ease traffic leading to more efficiency, and make a significant contribution to a better environment.
Which brings me to the question as to why prices of fuel at the pump were raised only one-third the prices of utilities. This could be partly explained by the fact that utility prices were not adjusted for some eight months during which period fuel prices underwent some relatively minor tweaking upwards. However the main reason is otherwise. The main reason is that for the way we measure inflation the changes in fuel prices have greater impact on the retail price index than changes in utility prices. And given that we still have mechanisms which transfers measured inflation into automatic wage increases, the government is extra careful to avoid agreeing pricing structures which stimulate measured inflation with the risk of igniting second round inflationary spiral.
Valid as this is in the current circumstances nothing changes the fact that this is like the tail wagging the dog. Real inflation probably goes up just as much, or even more, by utility price increases as by fuel price increases. If anything, utility usage is somewhat less sensitive to price changes than usage of fuel purchased at the pump. The reality is that we are carrying outdated legacy systems for quasi automatic wage increases triggered by measured inflation which are totally inappropriate for an economy struggling to preserve its competitiveness following its membership in a hard monetary union with a currency that by all economic measures is fundamentally overvalued.
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