Wed, Aug 02, 2006 - Page 8 News List

Editorial: Let the market prevail

Rising commodity prices have cast a shadow over Taiwan and the rest of the world, and have become the government's biggest obstacle to economic growth. Some predict that oil prices and health insurance fees are set to rise. Given the impact this could have on the economy, the government must carefully consider how it will respond.

Since last year, international crude oil prices have risen from about US$40 a barrel to almost US$80 a barrel. Domestic oil prices have also climbed -- but to a lesser degree, as the government is keeping prices artificially low.

Since the beginning of the year the price of one liter of gas has risen by NT$4. The price difference between the international and domestic markets has Chinese Petroleum Corp (CPC) and Formosa Petrochemical Corporation (FPC) struggling to stay out of the red. And even though prices are being kept low, many still think gas is prohibitively expensive.

Increased domestic oil prices have also meant a rise in electricity and natural gas rates. The increase does not reflect the actual rise in costs, as the government wishes to reduce their impact. As a result, the domestic price of gasoline, at NT$30 per liter, is far lower than in the US and Europe, where it is closer to NT$45.

But cheap oil prices should not be seen as the result of wise government. As the price of international crude will likely continue to rise, the CPC and the FPC will only be forced into making a bigger price hike in the future, which will deal a heavier blow to family budgets. The CPC's financial losses, meanwhile, will eventually be covered by funds from the nation's coffers. In other words, everyone will be forced to subsidize oil users, reducing incentives for efficient energy use.

Government intervention in oil prices has distorted the market mechanism. If Taiwan insists on resisting world trends, it will eventually be punished by the market. Only when the government stops interfering in oil pricing, lets the market prevail and establishes the notion of "user pays," will the public be freed from the agony of the anticipation of constant price hikes.

The Department of Health, meanwhile, is taking the opposite approach. It is planning to raise health insurance premiums to resolve a financial shortfall. Judging from the fiscal status of the Bureau of National Health Insurance, premiums would have to be increased by 18.9 percent to resolve the deficit. But when the government first proposed an increase, it provoked a torrent of opposition. Even members of the Democratic Progressive Party were critical, demanding that the government not implement the policy.

The national health insurance deficit was not caused by the market mechanism or inadequate premium payments. Instead, mismanagement -- such as the withholding of premium payments by corporations and local governments, as well as kickbacks for drug sales -- is to blame.

Rather than seeking to raise premiums whenever it runs short of cash, the bureau should first improve its managerial skills, and curtail expenditures and medical resources. The government should also form a Cabinet-level committee comprising medical experts, management professionals, accountants and consumer representatives to scrutinize the finances and the management of the health insurance program.

The government should consider allocating a budget or increasing premiums only if it cannot resolve the deficit through improved efficiency.

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