Unrest after JLP hikes SCT On fuel, but is it justified

Emotions have been very high over the decision of the JLP government to increase the SCT on  fuel by a whopping $7.00 . The general view by many leading commentators and analyst as well as the public , is that this increase will be inflationary in nature , thus leading to higher cost all around.

On TVJ news, one taxi association has warned that unless the government removes the new tax, there will be a island-wide shut-down of the taxi service.

Are these comments true and are they justified, will they lead to higher levels of inflation over last year, let’s do the maths.

Last year the PNP government indicated that Jamaica had achieved the lowest level of inflation in over 40 years which was very commendable. What was ironic is that this was achieved despite the fact that the PNP imposed a $7.00 increase in the SCT on fuel. So how were we able to achieve that level of inflation, despite that inflationary increase in fuel prices.

I am not sure why that would have been the case, but this time around, the same amount of increase would lead to significantly levels of inflation, higher bus and tax prices, higher prices for goods and services and a shut-down of the transportation system if its not rolled back?

After completing  a 5 minute analysis of the gas prices between last year and now, I was not very surprised to see that gas prices this year even with the $7.00 increase in SCT is between  9 and 12% LOWER than it was at the same period of time last year, is that not SHOCKING.

So this year all hell is going to break lose given the JLP’s decision to increase the SCT even though the price of fuel, is about 10% lower than it was this time last year.

See table below. Price are Petrojam ex-refinery prices.

Date SELECTED FUEL PRICES/LITER
87 90 DIESEL PROPANE ULSD
19-Mar-15  $ 103.94  $ 105.59  $   99.79  $    36.76  $ 111.37
Price after SCT  $ 110.94  $ 112.59  $ 106.79  $    43.76  $ 118.37
MAY 12 2016  $   93.58  $   95.23  $   86.20  $    33.85  $ 102.17
Price after SCT  $ 100.58  $ 102.23  $   93.20  $    40.85  $ 109.17
Difference in $  $   10.36  $   10.36  $   13.59  $       2.91  $      9.20
Difference in % 9.3% 9.2% 12.7% 6.6% 7.8%

 

I continue  to find that lack of critical analysis in Jamaica frightening, for  a country that is trying to dig itself out of economic stagnation and there appears to be very few persons who are willing to simply look at the data and form an unemotional non-political attachment to the interpretation of the data.

I have presented the data, now form your own opinion from what I have presented above in the table and the inflation data and then juxtapose this against what you have seen and heard in the print and electronic media.

 

 

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One Response

  1. I agree with you that it is not necessary that a rise in taxes will translate into higher inflation; however, I believe your calculations does not include all the considerations necessary to draw any form of conclusion that the rise in taxes on gas won’t lead to inflation. What you should say is visible inflation. You see, the people are already experiencing high inflation, and relative to the price of fuel prior to taxes, you will see that the price in fuel by itself is on the down cline, but Jamaicans in a whole have not benefitted from that down cline as much as they should due to the tax hike on fuel, and thus in reality has been experiencing higher inflation. An increase in the taxes on fuel will again lead to higher inflation, but the people may not feel it, because the price in gas may yet again fall. Based on current situations on the international market, not due to Jamaican government policies, the price of fuel may yet again fall as Oil Rich nations have been able to reach a deal in order to stop the fall in price. In other words, the PNP were lucky they were caught in a perfect storm where price of fuel fell for consecutive years since they took power. So the right question you should ask is whether the JLP will be as lucky and see the same fall in the price of fuel in consecutive years to come? If they do not see that same fall, and with the Jamaican people now seeing a $14.00 hike in the price of fuel plus the rise in price of fuel, they will see a drastic rise in the effect of inflation.

    Your numbers do not take into consideration the drop in the price of fuel being the reason why the pain of the rise in the tax on fuel was not felt. Put the price of fuel back up, and all of a sudden the pain will be felt. However, I am of the opinion the pain from the inflation when the price of fuel, itself increases, will not be long-term, but in the long will drive down the inflation because people’s behavior will change leading to less travel and reliance of vehicles requiring fuel. When people’s consumption is reduced, the price level will fall due to decrease demand, price of other goods will fall as well due to decrease consumption leading to less demand. Jamaicans must not be protected from the consequence of their own bad spending habits. They will experience a rise in the cost of all imports, and this should provide an opportunity for local producers to take advantage, if they know how. Higher inflation is what Jamaicans need to help them curb their demand for higher price good – imported goods. People will still need certain goods, and local suppliers can widen customer base in order to offset the cost of production while keeping local prices steady. Folks need to become creative with economics.

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