EDITORIAL | Wednesday, 02 March 2008

Capping fuel taxes

The increase in the price of diesel, which is now more expensive than unleaded petrol, will definitely leave an impact on the industrial and commercial sectors.
Diesel is the fuel normally used to drive commercial and industrial vehicles including public transport buses.
The 7.5% increase in the pump price of diesel was necessitated by the price fluctuations in the international oil market even if the Enemalta press release announcing the price changes contained scant information unlike previous announcements.
Malta can still boast of having among the cheapest pump prices in the EU but this on its own is no justification to do nothing and simply accept a situation where fuel prices just shoot up.
Unlike the oil purchased by Enemalta to fuel its power stations, government rakes in a lot of tax revenue from fuel sold at pumps, which is subject to excise duty and VAT.
There is no doubt that the last three years have given government a windfall tax-take from fuel sold at the pumps due to the international oil price hikes.
In view of the international indications that oil may maintain its upward trend throughout the year we strongly suggest a capping of fuel taxes.
Government may set a benchmark based on the average income received from fuel taxes in the past two years and any tax revenue generated from the sale of fuel that surpasses that benchmark will be used to keep the price of fuel down when the international markets push upwards.
The benchmark can be revised on a yearly basis making sure that the capping applies only when the increased tax revenue is a result of higher fuel prices and not as a result of increased demand.
In this way industry can be sparred some of the brunt of higher fuel prices, which inevitably will always be passed on to the consumer through higher product and service prices.
At a time when the economy is revving up a bite on government’s windfall revenue from fuel will not hurt. On the contrary it can act as an incentive to keep the economic wheel spinning.
Another major decision government needs to consider in the weeks ahead is the surcharge on utility bills. The fact that for the past months the surcharge was kept stable has helped the commercial sector plan ahead. Stability should be a prime consideration when the surcharge comes up for review in two months’ time. For the past few months stability was on government’s cards for obvious electoral reasons. We hope that the policy is maintained even if the surcharge would probably have to increase.
Constant fluctuations of the surcharge every two months can create problems, especially for the manufacturing sector since the price of utilities would be hard to factor in where medium to long term planning and pricing strategies are involved.
Within the limits of reason and feasibility, and more importantly, without the constraints of a looming general election, government must aim to stabilise the surcharge for a six-month period. To avoid sudden impacts, on a monthly basis government can still publish the potential surcharge based on the movements of oil prices so that businesses can have a clear idea of how the surcharge is fluctuating.
A more stable environment is of utmost importance, especially in an economy like ours where energy demands are met solely by Enemalta’s oil-fired power stations.
This is where we expect the resources authority that should be overseeing Enemalta’s operations to step in. The authority must be calling the shots in this regard rather than the operator, which enjoys a monopoly and is saddled with inefficiencies.
These measures will not dispel the omen of expensive oil and its consequences on open economies like ours but at least they will go a long way to create peace of mind for businesses to be able to plan ahead without them having to suffer the shocks of the international market.
Cushioning oil and fuel increases could be considered as part of the package of incentives the governing party has promised it would deliver to further stimulate the economy.