GASOLINE SUBSIDY IS ABOUT CURBING INFLATION

It is a crucial measure to avoid awkward increases in the country’s cost of living which would have taken place had Government merely maintained the subsidy at levels provided in the 2004/2005 Budget.

Any upward adjustment of gasoline prices at the pump would result in increased transport costs of raw materials to manufacturers, goods and services to other employers and the finished products to domestic consumers.

In turn, because greater transport costs to consumers would have impacted negatively on their household budgets, there would have been pressure on employers by their trade unions to increase wages and salaries to workers.

Employers faced with both a hike in their companies’ transport costs and demands for larger pay packages would, in keeping with practice, pass on these costs to their consumers, leading to a rise in the cost of living.

Government’s tacit expanding of the gasoline subsidy is a recognition not merely of the need to keep current wage and salary adjustments within the current 12 to 15 percent but to avoid any uncomfortable jump in the cost of living.

If in 1975, 30 years ago, the combined subsidy of premium gasoline (then pegged at 81 cents a gallon), regular gasoline, kerosene and gas/diesel oil was approximately $56 million, then during the current 2005/2006 Financial Year it is estimated that it will be appreciably in excess of $1 billion!

In the absence of a gasoline subsidy, however, the cost to employers, would have been far greater than $1 billion — both in increased salaries and wages and the negative competitive position of our goods which would have resulted from higher manufacturing.

This would have meant, in addition, a marked drop in revenue from corporation taxes, lower overall salaries and wages, through attrition, and, consequently, less money turned around within the economy.

Another negative factor would be that TT might become less attractive to domestic, regional and international investors. The country needs more, not fewer, medium- and small-sized industries.

For Trinidad and Tobago to make the economic climate as attractive as possible for potential investors and, for additional small- and medium-sized industries to thrive, then it will have to convince investors that it has a competitive edge and that invested capital will have a high possibility of adequate returns on investment.

We are not saying that a gasoline subsidy, no matter how great, is the only factor in the scheme of things but its continued subsidy will help keep production costs in check and assist in providing the country’s products with the much-needed competitive edge.