Must Ordinary Taxpayers Subsidize Big Business?
China Times editorial (Taipei, Taiwan, ROC)
March 20, 2012
Summary: Suppose someone proposed having ordinary citizens subsidize Big Businesses such as TSMC, Hon Hai, China Steel, and the filthy rich? Everyone would express angry opposition. There would be a public backlash. The government would be terrified of doing so. But consider the current gas and electricity price control system. It is precisely that. It is a system that compels ordinary citizens to subsidize Big Business and the filthy rich. Many people don't see this. That is why when the government proposes unfreezing prices, they say no.
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Suppose someone proposed having ordinary citizens subsidize Big Businesses such as TSMC, Hon Hai, China Steel, and the filthy rich? Everyone would express angry opposition. There would be a public backlash. The government would be terrified of doing so. But consider the current gas and electricity price control system. It is precisely that. It is a system that compels ordinary citizens to subsidize Big Business and the filthy rich. Many people don't see this. That is why when the government proposes unfreezing prices, they say no.
Taipower and China Petroleum are state owned enterprises. Any profits they earn are returned to the treasury. Any losses they suffer are made up by the national treasury. In other words, when gas and electricity prices fall, China Petroleum and Taipower suffer losses. The treasury, i.e., taxpayers, are compelled to subsidize users of gas and electricity. This subsidy resembles the social welfare system. Social welfare is a form of income redistribution. It redistributes money from those who have more, to those who have less. Gas and electricity subsidies are also a form of income redistribution, in reverse. They redistribute wealth from ordinary taxpayers to Big Business and the filthy rich. Big Business and the filthy rich receive the most. The economically disadvantaged receive little -- pitifully little.
Let us examine the data. Say the cost of Taipower's power generation is $100. Industrial users of electricity and ordinary users of electricity pay about $70. In other words, the government subsidizes industrial users of electricity and ordinary users of electricity about $30. Ordinary users of electricity receive slightly more. This arrangment appears to benefit the general public. But examine some of the other data. The average family consumes about 350 kWh of electricity per month. But major commercial and industrial users consume an average of seven million kWh of electricity per month, or about 20,000 times as much as the average family. Homes of the super-rich consume about 10,000 kWh of electricity per month, or about 30 times as much as the average family.
Mega-enterprise power consumption is even more mind-boggling. Each month they use hundreds of millions of kWh of electricity. China Steel's electric bill last year was 4.86 billion NT, If we continue to freeze electricity rates this year, the taxpayer will be compelled to subsidize the steel industry to the tune of one billion NT. TSMC's electric bill accounts for only 3% of its annual revenues, One year of electricity costs 12 billion NT. Freezing the price of electricity this year will cost taxpayers 2.5 billion NT in subsidies to TSMC. These figures show that Big Business and the filthy rich consume the most electricity and receive the largest subsidies from the nation's coffers.
The gas price control system means a China Petroleum shortfall of 600 million NT per year. The price of electricity has been rising. Therefore Taipower estimates it will lose $1.1 billion this year, This year's electricity price freeze will cost $1.8 billion NT. If gas and electricity prices reflected costs, the treasury would not have to bear this $1.8 billion NT burden, Consider what this means. The money could then be used on people and society. It could expand social welfare, strengthen investment in education, improve technology and public investment. It could benefit the people as a whole. It could improve our national competitiveness. But as matters currently stand, it can do none of these things.
By now everyone realizes who the biggest beneficiaries of gas and electricity price freezes are. They are classic examples of "robbing the poor to pay the rich." How can we begin to speak of fairness and justice? These Big Businesses demand government subsidies. Electricity prices are kept artificially and unreasonably low for them out of political considerations.
Some businesses have been screaming that if gas and electricity prices increase further, they will not survive. But Taiwan's gas and electricity prices are among the lowest in the developed world, Even after they are hiked, they will still be among the lowest. If these businesses cannot survive, even with such low energy prices, it means they lack competitiveness and ought to be phased out. Moreover, in manufacturing, electricity accounts for only two to three percent of total capital costs. Even if the price of electricity increased 20%, it would only increase capital costs 4%. Its impact on business is limited. It definitely does not imply that capital costs will increase 20%. If a business cannot survive without taxpayer gas and electricity subsidies, it should be ashamed of itself. Why should taxpayers be compelled to underwrite such uncompetitive businesses?
The most important and most convincing reason to oppose unfreezing gas and electricity prices, is concern for the general public, particularly the underprivileged. This concern is justified. The government should look after the economically disadvantaged. The solution however, is simple. Within a certain range of energy consumption, prices would be kept low. The government currently sets the cap at 110 kWh. This would look after the disadvantaged. It would not increase their cost of living. If on the other hand, we freeze prices across the board. Big Business and the filthy rich will be the ones looked after. Artificially low prices would also lead to energy waste.
Therefore the government must offer a convincing policy. It must hike the price of gas and electricity, as soon as possible. Delays will only undermine China Petroleum and Taipower's fiscal health. The treasury will only have to make to make up a greater shortfall. The government must establish a gas and electricity pricing mechanism. It must take advantage of the opportunity to create a floating price mechanism. Officials on Taiwan lack courage. Elected representatives on Taiwan are populists who pander to the mob. The current rate hike has proceeded smoothly. But one day a smooth rate hike will no longer be possible. Every rate hike will become a major political and social crisis. The problem must be solved, once and for all,Gas and electricity prices are a political football that must be solved, once and for all. Give us a floating price mechanism.