Certain policies, which this Cabinet of Ministers inherited from at least the last two Cabinets, are opaque and should be changed.
For example, the fuel derivative pricing formula was never properly disclosed. One past minister after another gave general headlines, but never really gave the equation. We do know from the general statements given that the pricing formula does not have a cap as in other countries, for example Malaysia.
In other words, if prices rise beyond a certain level, there are no safeguards to ease the economic burden on the citizen.
Why should the state keep close to its bosom a formula that affects every household and producer in a country that is supposed to be an example to follow in the region in terms of governance? People who do not know usually assume the worst, which leads to unwarranted animosity between the ruler and the ruled.
Taxing fuel derivatives, a policy instituted more than three years ago, was a wrong policy in a country where the average citizen had no say on whether the dinar, pegged to the US dollar since late 1994, should remain pegged as such or be subject to a currency basket to hedge against rising commodity prices, which are dollar denominated. Under the current macroeconomic scenario, Jordanian citizens bear the full brunt of price increases due to US dollar fluctuation. As the US dollar falls, oil prices rise and the purchasing power of the dinar, which is pegged to the dollar, falls as well.
On the other hand, as an observer of the Jordanian economy for almost two decades now, I was shocked to find out last week that the actual tax on gasoline reaches as high as 40 per cent on (95 octane) unleaded fuel and 22 per cent on (90 per cent octane) gasoline, not 18 per cent and 24 per cent as I used to think was commonly perceived. When and how did this happen? Most importantly, this type of tax pits the state interest against that of the citizen.
As oil prices rise, the government makes more money and the citizens pays more than the actual increase in prices; a case of conflict of interest between the government and the governed, which is not favourable in modern-day governance.
A colleague and I published two research papers a couple of years ago on the issue of energy and its impact on industry in Jordan. Our major finding was that for every 10 per cent increase in fuel prices, industrial production falls by 1.6 per cent. It would have made sense for policy makers to look into such research and at least discuss it. The two papers were sent by industrialists to past Cabinets of Ministers and promises were made, but no policy decision was made.
Still, I would love to evaluate the impact of current energy policies on deforestation in Jordan, as citizens cut trees to heat their homes. Can anyone deter a poor freezing individual from cutting a tree? I doubt it. Policy should take that into consideration. Otherwise, Jordan, one of the poorest five countries in the world in terms of forestry, will see its century-old trees cut within months, not years.
The six million people of Jordan have more than one million vehicles. They are all imported and pay over 80 per cent in taxes and fees. Consequently, the price of my car relative to my income is 25 times more expensive than it would have been had I been working in the US. Even the cost of gasoline relative to the per capita income is nine times more expensive in Jordan than in the US. Again, this is a case of conflict of interest, as the state has no incentive to provide an adequate transportation system, since it makes money from the existing inadequacy.
At the same time, Jordanians face the dilemma of being buyers of fuel derivatives from a de facto state-run/sanctioned monopoly (the Jordan Petroleum Refinery) whose inefficiency is now a matter of public record.
The monopoly of the refinery, which was supposed to end in 2008, has been extended indefinitely, possibly because of misuse of discretionary powers by state-appointed officials. We don’t know whether it is to remain a monopoly or not, and we should know. In fact, we must know. The days when governments played a paternalistic (or Big Brother) role are over.
Once more, there is a case of conflict of interest since the state benefits from inefficiency by taxing the monopoly prices and reaping the high monopoly rent, which is higher than that stipulated by competition.
Add to the above the fact that Egypt has reneged on its commitments in terms of supplying Jordan with gas, and one Cabinet after another stood helpless against the broken promises of gas delivery.
As citizens, we feel we are the ones asked to pay the price of failed policies and seemingly mediocre performance. We should not!
Put together, fuel and energy prices, and the policies that caused them to bring unmitigated hardship upon the average citizen, particularly the vulnerable groups in society, need to be revised in a holistic manner. As a rule, people are angered when they believe that the other does not understand their view or care enough to listen to it.
They want to be engaged in the decision-making process, especially if it relates to their present and future well-being. Disengagement, or semblances thereof, separates government from the governed, something that nobody wants. Hence, before any tax is imposed or removed, policy makers should look at the total tax burden on the citizen.
*Published in the JORDAN TIMES on Jan. 18, 2011.