25 Aug Given the current situation, it would be better to eliminate the subsidy on oil prices—yes, oil
Some people may wonder, “What does this have to do with me?” Others might respond, “What difference does it make?” This post is directed at the former group.
For us, the consumers, removing the hydrocarbon subsidy would indeed mean higher prices at the gas station. That much is clear. But for those who remain unconcerned, let me clarify: this issue also directly impacts the government and the industry. Let me explain why.
Back in 2010, President Evo Morales and his Economy Minister (now President Arce) decided to eliminate the subsidy in a blunt move, increasing gasoline and diesel prices by over 80%. The measure faced widespread public rejection, and we all remember the fallout.
What many might not recall, however, is that this price hike was achieved by increasing the consumer tax (Impuesto Especial a los Hidrocarburos y Derivados). Though seemingly minor, this point is crucial: the price increase effectively told the hydrocarbon industry, “I, the Government, will collect more taxes. If you, the oil producers, want a piece of this, I’ll distribute it to you through a state-controlled fund—if you play by my rules.” A classic Government tactic.
So, what might this look like if subsidies on gasoline and diesel are removed again? The government would increase taxes on consumers and decide, based on the behavior of companies in the oil supply chain, whether to offer them any compensation. Thus, despite the “enormous sacrifice” made by “the Bolivian people” in paying unsubsidized prices, the oil sector’s situation would remain unchanged. The price of oil would stay frozen, and any revenue increase would solely benefit the state budget—essentially financing public spending.
In my view, if a hypothetical collective “yes” supports removing these subsidies, it should be accompanied by increased producer prices for oil, along with improved margins across refining, transport, storage, and distribution.
If subsidy removal merely results in more tax revenue for the Government, we’ll be left with the same scenario: public spending funded by consumer contributions, and the hydrocarbon sector stuck in its current state. Some might argue, “But smuggling would stop.” My response: imports would still continue.
Raising consumer prices is part of the solution, but without supply policies (i.e., fostering domestic fuel production), the problem won’t be solved. Removing the subsidy would be more beneficial if it encouraged domestic oil production.
Let’s hope that a hypothetical “yes in the proposed referendum” to subsidy removal doesn’t become an excuse to raise taxes and fund public spending, while leaving the hydrocarbon sector struggling as it is today.
S. Mauricio Medinaceli M.
August 25th, 2024
No Comments