Middle Class Benefits Most from Fuel Subsidy

It is very important to give time to poor households to adjust to price hike.

Selasa, 17 April 2012, 14:23 Nur Farida Ahniar
(VivaNews/ Nurcholis Anhari Lubis)


VIVAnews - Indonesia's middle and upper classes benefit most from fuel subsidy. Car owners who use 50 liters of fossil-based fuel per week are profited by around Rp1.115 million per month. 

A report announced by the World Bank under the title “Indonesia’s Quarterly Economic Development: Redirecting Public Spending” shows that the number is 10 times higher than what motorcycle owners received at Rp111,000 from five liters of fuel consumption per week. 

Meanwhile, poor households that do not own a car or a motorcycle only receive very little advantage despite indirect benefit from lower transportation expenses. 

According to the household survey (SUSENAS) in 2009, 40% of total fuel subsidy benefits are received by 10% of the richest population, and the poorest 10% of the population only enjoyed 1% of the benefit. The World Bank says it is very important to give time to poor households to adjust to price hike following the rise in fuel price, such as temporary public aid program suggested by the government. 

To date, the government has failed in increasing fuel price. Instead, the fuel price rise of Rp1,500 can only be set out if the average oil price (Indonesia Crude Oil Price or ICP) for the last six months is 15% higher than the assumption in the Revised State Budget of US$105 per barrel (or US$120.8 per barrel). 

The deficit in the Revised State Budget of 2.2% rose from 1.5% in the State Budget due to the increase of energy subsidy and infrastructure spending.  However, if the average oil price reaches US$120 in a year, the World Bank estimated that the budget deficit will rise to 3.1% of the non-adjusted GDP of the fuel price or 2.5% of the GDP if the subsidized fuel price is raised in the third quarter of 2012.


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