Gasoline Subsidies: How Long Will Govt Continue with Supposedly Temporary Program?

Easing the strain of rising gasoline prices on household finances is important, but a price control measure that requires such massive fiscal expenditures cannot continue without end.

It is time to switch to measures that target low-income earners and industries that use large amounts of gasoline, for example.

Prime Minister Fumio Kishida has announced that the government will extend through the end of this year the program in which subsidies are provided to oil wholesalers to keep gasoline prices down. The program was planned to finish at the end of September.

The extension was decided because the national average price of regular gasoline was ¥185.6 per liter as of Aug. 28, hitting a record high for the first time in 15 years. The depreciation of the yen is said to be the biggest factor behind this figure.

The prime minister’s intention to mitigate the impact of the record high is understandable.

The subsidy program that began in January 2022, however, was initially intended as a temporary measure to ease the drastic price change. Since then, it has been repeatedly extended.

It is inevitable to be concerned that the government might be unable to stop disbursing these pork-barrel subsidies over fears of public outcry.

The accumulated budget allocated by the government for the subsidies has exceeded ¥6 trillion. The government says that no additional budgetary measures are necessary even if the deadline is extended to the end of the year since that budget still has some funds left, but it must be remembered that the funds come from taxes paid by the people.

Normally, if prices rise for gasoline, consumers use less of it, which promotes energy conservation. In fiscal 2022, however, the volume of gasoline sales increased for the first time in seven years. It can be said that the subsidy system distorts sound pricing mechanisms and also runs counter to the decarbonization trend.

The current program also benefits wealthy individuals and companies with good business performance. Gasoline used for leisure is also covered. There is very little need to throw tax money at these entities or for these purposes.

If the subsidy program is to continue, it would be appropriate to limit it to low-income earners and to create a framework that focuses on supporting industries such as transportation, agricultural and fisheries, which are struggling with high fuel costs.

Some within the Liberal Democratic Party are calling for the invocation of a trigger clause that would temporarily cut the gasoline tax. However, such a move is the same as the current subsidy program in that benefits extend to the wealthy.

The U.S. government and administrations of European nations, too, had taken measures to curb gasoline prices, but those measures have already been abolished, leaving as exceptions Japan and the United Kingdom, the latter of which is confronting severe inflation.

It is important for Japan not to rely solely on stopgap subsidies, but also to step up efforts to reduce gasoline consumption, such as by promoting the wider use of electric vehicles and improving transportation efficiency.

(From The Yomiuri Shimbun, Sept. 3, 2023)