Ho Ching on fuel crisis: Lowering taxes & raising subsidies keep people addicted to cheap oil

Cutting taxes and increasing subsidies are both "bad options for all governments", Ho Ching wrote on social media.

The former Temasek chief was replying to a Facebook post by former Nominated MP Calvin Cheng on the ongoing fuel crisis due to the war in Iran.

Cheng, in his post, had suggested ways countries can deal with the fuel crisis: By letting the full price impact be felt economy-wide.

Subsidies drain the state, while cutting taxes is not targeted, he wrote in his post.

Addictive measures

In her Apr. 5 Facebook post, Ho said these two options "addict people and economy to cheap oil".

"Cutting taxes and adding more fuel subsidies simply subsidises the biggest users more, and encourage more wasteful use scarce and carbon intensive energy resources," she added.

Instead, governments should use the crisis to transit to a more energy-efficient economy, and more sustainable lifestyles.

Phase out old subsidies

For governments that already subsidise fuel, Ho said it is better for them to let the price increases "flow through".

This will be a signal to fuel users to adjust their use of oil and other energy sources.

Meanwhile, subsidies can be given in a "targeted, timely, and temporary" way to lower-income households, and selected sectors.

These subsidies can later be phased out together with the older, original subsidies, and the funds directed to transiting towards a more fuel-efficient economy instead, she suggested.

A similar method could be taken with taxes, which should be targeted towards vulnerable groups instead of for broad fuel use.

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Top image from AFP and Canva