Fuel Subsidy, Subsidy to the Poor or the Goodness to the Have?

This month Government of Indonesia (GoI) announces that Indonesia needs more subsidized fuel this year, exceed from total 44,04 million kiloliter to 45,2 million kiloliter. This is the second time in a year that GoI asks House of Representative (HoR) to allocate more funds in fuel subsidy. In last March, in Budget revision for fiscal year 2012, GoI already asked HoR to alter the fuel quota, from 40 million kiloliter to 44, 04 million kiloliter. The consequence is that more funds for subsidized fuel, from Rp 123 trillion to Rp. 137 T and finally hit more than Rp. 143 T. It means GoI allocates about 10% from national budget to subsidize the gasoline, kerosene and gasoil. This plan is criticized by some experts and international bodies due to some arguments.

To start with, GoI should pay more attention to Education, Health and Infrastructure sector than fuel. Because these sectors provide long term economic growth compare short term effect in fuel’s subsidy. By giving fuel subsidy, the automotive industries and its related industries gain short term benefit that people will buy more vehicles due to the cheaper fuel. However, giving more money to education, health and infrastructure will provide more high quality people and high quality investment in the long run and ensure the brighter future.

Secondly, cheaper means extravagant. We can analyze that even GoI increases the fuel quota, the amount is not enough. Exacerbating with the increasing Gross Domestic Product about 6% in the last ten year, means more cars and motorcycles and more traffic in most populated cities in Indonesia.

Finally, the most annoying fact is that the fuel subsidy targets are not accurate. As an economics term, subsidy aims to give the same opportunity to the poor to compete with the have. Unfortunately, more than three fourths of the fuel subsidy goes to the rich since only the rich can buy the vehicles. By using 25 liter of gasoline a day, the state ‘donates’ to the rich about Rp. 1,5 million per month. Thus, we can say that fuel subsidy is not subsidy but of the goodness of the state to the rich people.

Above all, I strongly believe that GoI should review its fuel subsidy policy and start to take sides to the poor. GoI can increase the price, or limit the subsidy only for the poor. For sure, it will induce political pressure, but once GoI decide the solid position, people will see which the accurate policy is, take sides to the poor or the have?

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