The Nation

FUEL PRICE

Korn defends diesel tax reductions

Holding down cost at pump 'necessary' for economy

Finance Minister Korn Chatikavanij yesterday insisted that diesel is an "economic fuel" deserving special attention from the government, after the prime minister decided to cut fuel taxes to continue subsidising the price. "It's not wrong to do this as long as the government has enough revenue," he said. The government plans to slash the diesel excise tax of Bt5.30 per litre as well as the value-added tax of 40 satang per litre so that the retail diesel price can be maintained below Bt30 per litre for five more months, from May to September. Inclusive of a reduction in the local-government tax, the subsidy would total Bt7.803 per litre, he said. Pongpanu Svetarundra, director-general of the Excise Depart-ment, said it would lose Bt8.5 billion a month, based on diesel consumption of 1.6 million litres. The proposal is to be tabled at the Cabinet's meeting tomorrow. Despite the move, Korn said he was confident that the budget deficit for the 2011 fiscal year would come under the Bt420-billion target. Both Korn and Energy Minister Wannarat Charnnukul denied that the step was a ploy to win votes. Wannarat said the price-maintenance policy, in place since last December, was really to cushion consumers from the bulging cost of living. Prime Minister Abhisit Vejjajiva said after his meeting with Korn and Wannarat that though the tax is less than the Oil Fund's subsidy of Bt6.40 per litre, he believed that oil prices would not stay as high as they are now forever. Wannarat said the Energy Policy Administration Committee would meet today to consider lowering the Oil Fund's diesel subsidy to Bt6 per litre. Abhisit insisted that diesel prices could not be allowed to rise, as it would set off a spike in the cost of goods and services. Coupled with domestic political problems as well as the nuclear crisis in Japan and the fragile global economic recovery, this might lead to stagflation, which would harm the Thai economy and benefit no one.

'No fiscal hardship' "The measure will not impose fiscal hardships and is the government's policy. If diesel exceeds Bt30 per litre, transport operators and manufacturers will ask for price increases. This government does not want to defer the burden to the new government, as in the past when the Oil Fund suffered a deficit of nearly Bt100 billion," Abhisit said. "The Oil Fund can help only until the end of this month," he added. Korn expects the tax cuts to shave about Bt45 billion off government revenue in the fiscal year ending September - Bt42.48 billion as excise tax and Bt1.9 billion as VAT. Pattamawadee Suzuki, dean of economics at Thammasat University and leader of Policy Watch, disagreed with the scheme, saying it undermined state revenue and left no more weapons for the government to fight inflation. She urged the government to deal directly with transport costs instead, probably through other tax measures for manufacturers, as well as through the environmental tax. She also pressed for an end to subsidies for cooking gas and diesel, in light of the continued increases in consumption and subsidies. Wannarat said the Oil Fund had Bt34 billion on hand. Exclud-ing net debts of Bt29 billion, it could spend Bt4.5 billion. The fund would be in a better position if it did not have to borrow, as oil prices go both up and down. Despite the depletion of its cash reserves due to the subsidy, the fund will not delay the payment of its gas-related obligations to PTT, he said. PTT's risk-management unit expects West Texas Intermediate and Brent oil prices this week to range from US$103-$112 and $116-$126 per barrel, respectively. Oil prices are expected to remain at a high level because of the supply disruption in the Middle East as well as oil-producing countries' thirst to sell more oil to finance their populist policies. Saudi Arabia, the world's largest oil producer, plans to spend $129 billion (Bt3.9 trillion) over the next several years to improve housing, healthcare and employment. To balance the budget after the welfare spending, Saudi Arabia needs to make sure that crude-oil prices stay above $85 per barrel this year and $95 next year. The hike in reserve requirements for China's commercial banks, though, could soften oil prices.


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