The government tried to abolish this subsidy several times, but in the face of massive protests it was withdrawn each time – until 2005, when it succeeded in abolishing the subsidy without public protests, despite a 50% increase in fuel prices.
The secret of success was careful preparation, thorough information and the introduction of various financial compensations.
Rebel
These measures included an increase in social subsidies, the abolition of tuition fees in public primary and secondary schools, an increase in the number of public transport buses, the introduction of a price ceiling for public transport fares, a better financing of health care in the poor, an increase in the minimum wage and investments in the electrification of rural areas.
Indonesia has also subsidized the use of fuel up to 2.2% to 2.8% of GDP. The government has tried to eliminate these subsidies since 1997 but failed each time due to widespread protests. He finally succeeded in 2005-2008.
Key to success were increased social grants (the poorest got money), improvements in health care and education, and preferential loans for small businesses.
These measures minimized the number of opponents and boosted the president’s popularity. The fact that the public was fully informed of the reasons and objectives of the measures greatly facilitated their understanding and acceptance by society.
In Iran, fuel prices have remained extremely low before 2010, with huge state subsidies. In 2010, however, the government removed the subsidy, causing fuel prices to increase fourfold overnight. Not only did the public not rebel, but they were almost unanimous in their support.
Essence
The secret to success lies in careful preparation, detailed information and adequate compensation. Thirty percent of the proceeds were donated to companies to support energy saving measures and investments in energy efficiency.
An additional 20% was allocated to the public sector (schools, hospitals, etc.) to offset rising energy costs and improve their energy efficiency. And 50% of the proceeds went to each resident for $40 a month – except for the wealthiest 20% of households.
Most families have benefited from compensation for the increase in fuel prices and the reform has increased social equality. The poorest have hardly benefited from the low fuel prices (they generally do not have a car), while the compensation paid by the government considerably improves their living conditions.
The reform significantly reduced poverty in Iran, resulting in strong moral support for the government. The reform has also boosted domestic demand, contributing to the growth of non-energy sectors and reducing unemployment.
In 2008, Switzerland introduced a carbon tax on a significant share of fossil energy (although gasoline and diesel were not subject to the tax), which gradually increased from 12 to 120 Swiss francs per ton.
Distributed
The tax is also due on household fuels, for which all Swiss residents receive equal monthly cash compensation from the state. This means that the less household fuel you use, the better off you are.
In Hungary, in the first half of the 1970s, there was a large subsidy on meat products, with all the negative consequences that entailed. In 1976, the government abolished the subsidy, which led to a spike in meat prices.
At the same time, all Hungarian residents received a monthly allowance of 60 HUF (a large sum at the time), which the vast majority of the population benefited from. The poor were the happiest because they ate much less meat than the average and bought the cheapest meat.
The Hungarian environmental NGO Air Quality Action Group has recently developed proposals, supported by calculations, for kilometer charging of cars and trucks and simultaneous compensation of the population. By implementing the proposal, 80% of the population would benefit (only the richest 20% would suffer losses).
So instead of fuel tax cuts and ill-advised fuel price caps, the amount saved by abolishing these measures should be distributed evenly among the population, except for a certain percentage of households. to the highest incomes.
This author
András Lukács is the president of Air Quality Action Groupa Hungarian environmental NGO.
