On Cheap Gasoline
Translated from Russian with the help of AI. Original: Russian version
I argue that cheap fuel and lubricants (FLs) harm the economy because the country forgoes substantial revenue. Prices should be market-based, with fair taxation redistributing the resulting rent.
I want to set out my view on why cheap fuel and lubricants (FLs) are very bad for the country's economy.
As a well-known figure once said, do not fear large expenses; fear small incomes. The key task of any state is the fair redistribution of government revenues and natural wealth, along with the creation of conditions for the development of free enterprise. The main instruments for this are taxes and institutions.
Everything earned in a country is part of its GDP, which determines the country's prosperity. The higher the price at which a country sells its goods abroad, the more revenue the state receives. FLs and oil are export goods.
FLs in the country are two, and sometimes three, times cheaper than the same product in neighboring countries. On the face of it, it looks as though people enjoy the country's resources at a certain discount. In the end, though, neighboring countries enjoy those resources too, and there is little that can be done about it. The country forgoes colossal amounts of profit: instead of selling these FLs at market prices, it lets them leave the country in the tanks of thousands of vehicles at prices half the world level. For example, about 3,000 trucks leave the country every day, and the tank of each holds 200-300 liters. Freight transport alone can carry out about 270 million liters of FLs a year. That amounts to roughly KZT 54 billion in forgone profit, assuming we lose KZT 200 on every liter. I believe the real figure is much higher, since passenger vehicles must also be taken into account, as well as gray-market exporters.
Over 10 years of non-market prices, the state has already lost about KZT 540 billion.
The same principle applies to all non-market prices. For example, thanks to cheap electricity we became the world's second-largest producer of cryptocurrency, and the main income went to the foreign companies that came here to mine. Thankfully, taxes have at least been introduced to close off this channel.
It is therefore critically important that prices of goods and services in the country be market-based, so that the state as a whole captures more added value.
At the same time, mechanisms for the fair distribution of wealth must work through a properly designed tax system. First, excise taxes should be used to capture part of the rent income from gasoline. Second, FLs are used mainly by businesses and by people with above-average incomes, so poorer households do not bear the losses directly. In this respect, inflationary government spending does far more harm, if one were to make the argument that higher fuel prices would make domestically produced goods more expensive. Third, the revenue raised must be converted into a high tax-free income threshold for the poor, free quality education, affordable healthcare, properly built infrastructure, decent targeted assistance for low-income people, and so on.