Prime Minister's Statement on Fuel Prices effective Monday 09 May, 2011
Statement by Honourable Stephenson King, Prime Minister and Minister for Finance, Economic Affairs, Economic Planning and National Development on Fuel Prices Effective Monday, May 09, 2011
Fellow Saint Lucians, my address to you on this occasion concerns the issue of oil and fuel prices. All fuel importing countries have faced higher, often volatile fuel prices in recent years, resulting in greater uncertainty and inflationary pressures in their domestic economies. Not being fuel producers, such countries have had to absorb the rising cost and determine how best to manage its impact on their economies, given their own objectives and priorities.
Saint Lucia is no different. As long as we import fuel, the country as a whole must pay the price. The question is, given the national objectives that I have outlined in my recent Budget Address, as well as previous ones, how best can we share the burden? How much should those who use fuel be protected from rising costs by the provision of subsidies by the Government, that is, how far should they be protected by taxpayers who provide the government with its revenue? How much should the government cut its programmes which bring needed benefits to society? These programmes are currently funded by revenue from fuel consumption. If the cost of fuel to the consumer is allowed to rise, how will it impact consumers and at what point and to what extent should the government intervene? The answers to these questions are not at all straightforward, as governments in general, including Caribbean governments, have found.
As Prime Minister and Minister for Finance, Economic Affairs and National Development, I have monitored international and domestic developments in the fuel sector; particularly in recent months, because of the potential impact on the islandís economy. I indicated in my Budget Address last April that we would continue to monitor the situation, having placed the matter under continuous review.
I have also observed that additional price hikes during the period used for calculating the price of fuel at the pump, would have resulted in a further price increase to consumers this month. After careful consideration, government has decided to keep the prices of gasoline and diesel unchanged at $15.38 and $15.57 a gallon respectively for a period of one month effective Monday May 9, 2011, to be reviewed each month thereafter. This was achieved by reducing the excise tax on gasoline from $3.00 to $1.90 a gallon and diesel from $3.00 to $2.53 a gallon.
The decision to keep the retail prices of gasoline and diesel unchanged was taken despite the continuous increases in the import price of fuel for the 4-week period of March 28 to April 22, 2011, which would have determined the price change on May 9, 2011. During that period, the imported prices of gasoline and diesel increased by 13.4 percent and 4.6 percent respectively. However Government has decided to absorb the increases by reducing its tax revenue.
The public should note that without the reduction in the excise tax, the retail price of gasoline would have increased to $16.48 a gallon and diesel to $16.04 a gallon. It should be further noted that the prices in some other Caribbean countries are even higher than the prices that would have prevailed in Saint Lucia had the Government not intervened. For example, the retail price of gasoline per gallon in some Caribbean countries as of May 4, 2011 is as follows:
Barbados $19.45 (EC$ equivalent)
St. Kitts and Nevis $17.20
To date, none of the Governments of those countries have intervened by reducing the tax on fuel.
The decision to temporarily reduce the excise tax on fuel comes on the heels of this yearís Budget Address, which stated that Government would increase the subsidy on the 20-pound cylinder of LPG; cooking gas, by $5 to a total subsidy of $15. In keeping with that decision, the price of the 20-pound LPG cylinder will be reduced from $43.16 to $39.46 per cylinder effective May 9, 2011. If Government had not decided on the additional subsidy of $5 per cylinder, consumers would have to pay $44.46 for a cylinder of 20-pound cooking gas. With a zero subsidy, the retail price would have been $54.46 a cylinder.
I must emphasize that governmentís intervention does not represent the introduction of a policy to cap prices at the pump. The pass-through mechanism still remains in effect but, within that mechanism, government has reduced the excise tax for that period only (that is, for the four-week period commencing May 09, 2011). The specified prices will be kept at current levels over the next month (and revised thereafter), as we endeavour to manage the current price volatility, provide some relief to consumers, help protect vulnerable citizens and reduce price uncertainty for the productive and business sectors.
These price adjustments will come at a cost to taxpayers and the country as a whole, as Government will have to reduce some of its capital programmes or effect other budgetary adjustments to cover the revenue loss due to the increase in subsidy and reduction in excise tax.
We have taken these steps out of concern over the adverse impact of rising fuel prices on consumers in general, on the productive sectors of the economy and on the poor and vulnerable. Reductions in world oil prices in the last few days are encouraging. They will influence fuel prices and together with other developments that could result in benefits which will be passed on to consumers in subsequent periods. Government will continue to monitor closely developments in international oil prices with a view to initiating the appropriate responses. Based on the pass-through mechanism, prices will be reviewed for the next adjustment date of Monday June 6, 2011.
I urge Saint Lucians to employ all the measures at their disposal to conserve fuel, in order to limit the adverse effects of higher prices on their personal budgets, on the national import bill and on the national income.
Please accept my sincere thanks for your patience and forbearance, as we continue to find solutions together, to whatever challenges that may be thrown at us by international economic forces.
I thank you.
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