Mike's Minute: Govt are in a fuel subsidy precedent they can't get out of

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Recorded01 Feb 2023

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The proof in the pudding that if you hand out free stuff people become addicted, is to be found in the already alarming concerns being expressed as to how life will continue at the end of this month, and then again, at the end of March when the fuel subsidies come off. The warning is already out from the transport people over the price of everything that’s transported, which is, well, basically everything. Costs will have to be passed on - it's the phrase of the age. It was always going to be that way even though petrol is cheaper now than it has been - oil is at $85 or so a barrel. Just before the war in Ukraine started, it was about $96 and it got up to about $139. Just before that peak, in a show of political opportunism, the Government took yet more money it didn’t have and pretended it was a free lunch. It wasn’t. It couldn’t last, it didn’t last, and it is almost over. But, like crack, we are hooked and can't see how it is possible to pay the real world price despite the real world price now being lower than the real world price was before the war. In fact, if the Government had been honest they would have charted the reason for the subsidy and suggested when oil dropped, which it was always going to, they would bail. But they didn’t, so they had to make it up. That’s why they extended it, but even they worked out finally it was unsustainable. Of course they've also set a precedent. Do we now get cheap petrol every time oil spikes? And if not, why not? We do of course still have a cost of living crisis, which the subsidy was supposed to offset. But as the figures have shown at 7.2 percent, it is clear we don’t have the slightest idea how to reduce inflation and giving out subsidised stuff so that costs can be passed on only leads to more and more inflation. Which leads to us asking for pay rises, which leads to more inflation and so it goes. The only way out of inflation is to bite the bullet and soak up some pain. But Governments aren't into that, especially in election year, and we aren't into it any year. Especially if we can simply cry that we are poor and we'll pass the cost on anyway. False economics aren't hard to understand, but they are dangerous to dabble in and almost impossible to get out of.See omnystudio.com/listener for privacy information.

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