President Ma Ying-jeou (馬英九) has not even started his second term, but his popularity is already plummeting amid a storm of public complaints over the relaxation of a ban on US beef imports, the demolition of houses in Taipei’s Shilin District (士林) in an urban renewal project, the implementation of a capital gains tax and the decision to remove the freeze on fuel price hikes.
The Ma administration has dealt with fuel price hikes before. When former premier Liu Chao-shiuan’s (劉兆玄) Cabinet allowed fuel prices to rise in 2008, the government paid a heavy price as its popularity rating took a drubbing, despite the implementation of a range of measures designed to make oil companies absorb some of the cost.
The government is now allowing a fuel price increase of about NT$3, even though international oil prices are pulling back. The reason is that CPC Corp, Taiwan, is unable to continue sustaining the financial burden of the government’s policy that has kept prices low over the past five years, as well as Ma’s implementation of a price freeze ahead of January’s presidential and legislative elections aimed at keeping voters happy and avoiding a negative impact on his election campaign.
Many consumers are likely to feel that such a sharp increase is unacceptable. This is the problem with fuel price hikes: When the government implements a price freeze or small, gradual price increases, no one is overtly pleased by this, but if prices are suddenly allowed to reflect the market cost, everyone starts complaining. However, like economists often say, there is no such thing as a free lunch, and sooner or later we will all have to help repay the debt accumulated as a result of several years of low or no price hikes.
Taiwan is heavily reliant on energy imports. The more closely energy prices reflect market costs, the greater the incentive to curb waste, encourage energy savings and develop alternative energy sources. CPC has a formula for adjusting to oil price fluctuations, but that formula has been frequently interfered with by both pan-blue and pan-green politicians. Any interference based on non-economic factors means that every time prices are put back on track, consumers suffer. The price hike this week might have devastated the public, but that does not mean that prices are now reflecting real costs: There have been reports that prices would have to rise by at least another 40 percent to do that. This must happen sooner or later and until then, Taiwan must prepare for another price shock.
Apart from the longstanding bad habit of interfering with fuel prices, the latest price adjustment is only intended to make up for CPC’s losses. The government has not proposed any complementary energy policies and the result is that the public is ill prepared for, and unlikely to accept, fuel price hikes. If the government also adjusted CPC’s financial and salary structure, and adopted policy measures to encourage energy savings — for example, by introducing higher prices for big consumers, thus amending the unreasonable impression among the public and smaller consumers that they are subsidizing fuel costs for big users — the public would probably feel a bit happier.
This big increase in fuel prices is just the beginning of more price increases. Electricity prices and various transportation fees might be the first to follow, and that would cause a general cost-of-living increase that would likely lead to a public uproar.