Gasoline Subsidies: It’s Time to Phase out Government Program

Vast amounts of money should not continue to be spent to keep gasoline prices down. The government’s subsidy program for gasoline should be phased out and eventually ended.

The government has decided to extend its provision of subsidies for gasoline to May and beyond. The subsidies began in January 2022 in response to rising crude oil prices and had been scheduled to end in April.

Gasoline subsidies were initially viewed as a temporary measure that were meant to last about two months. However, they have repeatedly been extended due to soaring oil prices caused by Russia’s aggression against Ukraine and other factors. This is the seventh extension.

Each time the subsidy program was extended in the past, a new date for ending it was also announced, but no such deadline has been decided on this time. It is likely that the administration is unable to end the subsidy program because it fears a public outcry if the subsidies end?

The subsidies are provided to oil wholesalers to keep wholesale prices down. The national average price of regular gasoline is adjusted to about ¥175 per liter. Without the subsidies, the price of gasoline would be more than ¥200 per liter.

Nearly ¥5 trillion has been injected into the program so far, and all members of the population, including the wealthy and large corporations, are uniformly benefiting. However, criticism has surfaced over the massive amount being spent.

Effective fiscal spending should be focused on areas such as small and medium-sized transportation companies. These businesses have suffered from a shortage of truck drivers, which has reduced their transportation capacity, as well as from soaring gasoline prices.

It is also questionable that the government subsidizes only the cost of gasoline to support household finances, while the prices of many daily necessities, including foodstuffs, are also rising.

Indefinitely continuing this policy, which ignores the price-setting mechanism, cannot be called appropriate.

In addition, the subsidy program runs counter to the government’s efforts to promote decarbonization. In fiscal 2022, carbon dioxide emissions from the industrial sector decreased by 5.3% from the previous year, but those from the transportation sector increased, with emissions from owner-driver vehicles rising by 7.2%.

Subsidies may be discouraging people from using public transportation and thereby using less gasoline.

Crude oil prices are once again at high levels due to tensions in the Middle East. Combined with the yen’s depreciation, it is difficult to expect gasoline prices to fall in the future. It is important to gradually reduce subsidies while building an economic structure that can withstand high fuel prices.

It may be time to allocate funding to promoting the wider use of electric vehicles and supporting research and development of energy-saving technologies, rather than to blindly distribute subsidies.

(From The Yomiuri Shimbun, April 21, 2024)