THE discourse on fuel subsidy adjustments can target restrictions on four-wheeled private vehicles rather than all types of vehicles. This scheme can redirect subsidies to the right targets and open up budget space to procure low-sulfur fuels. This fact was conveyed by senior researcher at the Center of Reform on Economics (CORE) Indonesia Muhammad Ishak Razak.
“If the adjustment is applied to private passenger vehicles that consume 43.1% of subsidized fuel, the inflation impact will be around 0.37%,” said Ishak in Jakarta, Thursday (15/8/2024).
According to him, this scheme is more appropriate than eliminating subsidies altogether, which would result in inflation of 5.3%.
Ishak said that currently the population of private passenger vehicles is 29.7 million units. Meanwhile, the population of motorcycles and public vehicles, which is 113.8 million units, consumes 53.9% of subsidized fuel.
He added that the 10% of the lowest economic households or 250 million people in Indonesia spend Rp108,400/month on fuel, while the top 10% spend Rp482,700 thousand/month.
However, according to Ishak, because the income of the lowest class is limited, the portion of their fuel expenditure reaches 7% of their income, while the richest people only spend 3.5%. “Poor household expenditure is twice that of the rich,” said Ishak.
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The fuel subsidy adjustment, said Ishak, will certainly widen the government’s fiscal space, allowing for budget reallocation for other spending such as infrastructure, health financing, education, and others. “It can also be for state capital participation in BUMN. Economically, there will be benefits,” said Ishak.
Executive Director of the Leaded Gasoline Elimination Committee Ahmad Safrudin agreed. According to him, subsidies must be adjusted so that they can be accessed by people who deserve subsidized fuel, especially those whose quality has been improved.
“Automatically, the upper-middle class community group is not entitled to subsidies, and must be willing to accept more expensive fuel prices due to incremental costs,” he said.
Also read: Government Ensures It Will Not Limit Purchases or Increase Prices of Subsidized Fuel
For that reason, Ahmad said, the government must be careful to ensure that fuel price adjustments are right on target and produce minimal inflationary impacts. The government must also take anticipatory steps to reduce the impact of inflation. “For example, through the distribution of social assistance,” he said.
In line, Ishak emphasized that the government must also provide a social safety net that can reduce the impact of inflation. “Especially for the lower middle class, and groups that have not previously been touched by social assistance,” he said.
He also assessed that the government must increase the capacity of oil refineries, so that in the future it can produce low sulfur fuel domestically.
Also read: Discourse on Restricting Subsidized Fuel, DPR Asks Not to Make Public Unrest
Ahmad said that the subsidy adjustment to provide low sulfur fuel to improve air quality is in line with the government’s policy of increasing fuel standards.
In 2017, the government through the Ministry of Environment and Forestry (KLHK) issued Minister of Environment and Forestry Regulation Number 20 of 2017 concerning Exhaust Gas Emission Quality Standards for New Type Motor Vehicles Category M, Category N, and Category O.
This regulation regulates the adoption of EURO IV standards for vehicle fuels, one of which is low sulfur levels. Ahmad said that this is one of five steps to reduce emissions from transportation.
In addition, there are improvements in vehicle technology, improvements in traffic and public transportation, implementation of incentives/disincentives, and law enforcement.
“[Improving fuel quality and vehicle technology]can be implemented in parallel with other steps, but cannot be skipped,” he said. (Yan)
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