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September 18, 2018

Subsidies often result in fraud

A man fills a bottle with Kerosene in Mathare, in Nairobi./FILE
A man fills a bottle with Kerosene in Mathare, in Nairobi./FILE

The price of kerosene has jumped from Sh84.10 to Sh94.40 per litre following the budget. Its price is now virtually the same as petrol and diesel.

There has been an outcry that this punishes the common person who uses kerosene for cooking.

Yesterday the Energy Regulatory Commission explained that 75 percent of kerosene consumption is used to adulterate fuel.

Consumption is 30 million litres per month. If 22.5 million litres are mixed with fuel by petrol station owners, their extra profit, or tax loss to the government, would be Sh225 million monthly.

So it is the petrol station owners who should be blamed. They forced the price rise on government.

Subsidies often have unintended consequences. Here it resulted in adulterated fuel. With NCPB, fertiliser and maize subsidies have enriched middlemen rather than helping the poor farmer. NOCK gets billions but its fuel is no cheaper than private companies.

As a general rule, subsidies do not work. They just perpetuate inefficiencies and fraud. The government should scrap subsidies wherever possible.

Quote of the day: "A prince never lacks legitimate reasons to break his promise."

Niccolò Machiavelli

The Italian political adviser died on 12 June, 1527

 

 

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