Prime Minister's Statement on Fuel Prices - October 13, 2000
STATEMENT BY HON DR KENNY D ANTHONY
PRIME MINISTER AND MINISTER FOR FINANCE AND ECONOMIC AFFAIRS
ON FUEL PRICES
October 13, 2000
Tonight, I am not a bearer of good news. Rather, I am here to address you on a matter which has understandably attracted your concern over the past few months. I speak of fuel prices.
Over the past year, we have witnessed dramatic increases in oil prices throughout the world. No country has been spared. The price of gas has increased in the United States, Europe, Canada and the developing world. In some countries, the increases have even sparked protest action.
All Caricom member states, with the exception of Dominica and St Vincent have increased prices in the aftermath of increasing world prices. Presently, unleaded fuel and diesel is sold at the following rates in other Caricom states:
In Barbados where gas is presently sold at $9.82 per gallon, the Government has increased the price of fuel at least twice this year.
It must be remembered that unlike Saint Lucia and Trinidad & Tobago, motorists in other Caricom countries continue to pay vehicle licenses.
Once the price of fuel increases, then the price of everything else will go up. The price of producing goods will climb; so too will transportation costs increase. Nothing will be spared. Since we in Saint Lucia import so much of what we consumes, then inevitably, we will experience price increases. This is one of the reasons why, in recent times, we have experienced certain increases in the price of some imported goods and services.
SHARING LOSSES AND GAINS
For many years now Government has attempted to keep the retail prices of petroleum relatively at the same level. This had been achieved through a price structure that, prior to June 1998, allowed only the government to bear the losses or to enjoy any benefits when the imported price of petroleum changed.
It is for this reason that government, in the 1998 budget announced a change in the price structure which:
Moreover, if import prices were such that the consumption taxes should change beyond the stipulated range, then pump prices would be adjusted by the equivalent amount outside the range. You will recall that Government decided to abolish payment of vehicle licences as part of the new pricing arrangements. As a result, the 1998/99 Budget set the price of Leaded Gas at $6.33, Unleaded at $6.73 and Gas Oil or Diesel at $6.23 per gallon.
REDUCTION IN DECEMBER 1998
This method served us well and in December 1998, in keeping with lower oil prices, the prices of Leaded Gasoline, Unleaded Gasoline and Diesel were reduced to $6.06, $6.42, and $5.98 per gallon respectively. To date, these prices have remained unchanged even when the market conditions for petroleum have increased significantly.
IMPACT ON GOVERNMENT REVENUE
Maintaining stable petroleum prices continues to have a significant impact on government revenues. Indeed, Governments failure to increase prices has contributed, in large measure, to a deterioration in revenue intake, perhaps at a time when additional revenues are needed most.
Since Government has maintained retail prices, consumption tax receipts have plummeted. Between April to December 1999, Government lost $8,294,201.5. Between January to August 2000, Government lost a further amount of $16,339,295.8. In effect, we have experienced a total revenue loss of $24,633,497.3.
If there is no price adjustment for the remainder of the year, the loss in revenue for the calendar year 2000 will increase by an additional EC$6.0 million. Revenue collections from this source for fiscal year 2000/01 will therefore be significantly less than expected and Governments ability to implement its expenditure programme will be adversely affected. Put differently, Government would be unable to repair and refurbish more schools, meet increment payments to public officers and satisfy demands for other services.
The continued decline in consumption taxes from petroleum will, if not arrested, lead to a decline in Government savings and, accordingly, handicap the capacity of Government to provide counterpart financing for its capital expenditure programme. Moreover, the overall public sector savings target of 8.0 percent of GDP and the central government savings target of 3.2 percent of GDP will not be realised. We will therefore not be able to draw down the balance of grant funds (STABEX) from the European Union. Frankly, I would be irresponsible if I had to maintain the current situation.
I have mentioned the loss in revenue incurred by the worldwide increase in fuel prices. Allow me to remind you that we have had to deal with severe natural disasters, loss in banana revenue due to in part to the low value of the pound and market developments in Europe. Despite these harsh realities, Government through prudent fiscal measures and carefully crafted development plans has been able to maintain all its services to the public and generate growth in some sectors.
GOVERNMENT UNABLE TO CARRY COST
While Government has strenuously resisted adjusting gasoline prices in the past months, it is no longer possible to carry this cost.
Government had maintained the prices until now to contain inflation, cushion transportation costs, and reduce costs for our manufacturers and producers. As I indicated in my 1998/99 Budget presentation, both government and the consumer must share in the benefits and losses from the pricing mechanism. Duty has called and we must now all share in the losses. Government has therefore decided that effective October 16, 2000 gasoline prices will be as follows:
Of this amount, Government has decided three cents per gallon will go to the Dealers who for months have been pleading for an increase in their margin.
The import prices of Kerosene and Liquified Propane Gas (Cooking Gas) have also risen substantially. Here too, Government has not adjusted the retail prices and consumption tax collections have declined. In fact, Consumption taxes on cooking gas and Kerosene were negative during the 2nd week of September. What this means is that Government had to pay the shortfall from the Consolidated Fund in order to keep retail prices constant.
RETAIL PRICES FOR KEROSENE AND LPG
In light of the substantial declines in unit consumption tax rates on Kerosene and LPG, and mindful of the potential impact on the cost of living, the following adjustments to the retail prices of Kerosene and LPG are announced:
The retail price of a 20-pound cylinder will increase by $.80 and will now be sold at $28.20. The retail price of a 100-pound cylinder will increase by $13 and will be retailed at $150.00. Here too, the distributors of cooking gas who have not had an increase in their margins for quite some time will receive a 2 cents per lb increase.
Some might argue that Government should have incrementally increased prices. That argument ignores the savings already passed on to consumers as a result of the non-implementation of increases. Moreover, too frequent changes encourage uncertainty and this could be harmful to producers and manufacturers as well as motorists.
As I address you, world prices for crude oil have risen again, this time pushed by events in the Middle East. Continued instability in the Middle East could force prices to increase even higher. Indeed, at the close of business yesterday, a barrel of crude oil was sold at a ten year high of US$35.30. The initiative which I have just announced could well fail to achieve the expected results because of continued increases in the price of crude oil. I hope it ends, and soon.
Prime Minister and Minister for Finance and Economic Affairs
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