New budget is a breath of fresh air

A Saudi man at a gasoline station in Jeddah. (AFP photo)

A Saudi man at a gasoline station in Jeddah. (AFP photo)

This column appeared in Arab News on Jan. 03, 2016:

By Rasheed Abou-Alsamh

The new Saudi budget approved and announced last week by the Cabinet is a breath of fresh air in that it addresses the budget shortfalls in intelligent and must-needed ways.

Announcing an immediate 40 percent to 50 percent rise in fuel prices was something long overdue since we have had some of the cheapest gasoline in the world for many years. With the barrel of oil at less than $40 a barrel and our government spending needing at least a price of $90 a barrel to balance our accounts, something had to give.

Our electricity and water rates are also being readjusted upward starting Jan. 11. These rises are also long overdue. Our cheap water and power rates have meant that many Saudis have wasted both by leaving their lights and air-conditioning on the whole day, even when they were not home! This wastage of our resources is sinful and should be stopped. Hopefully, the rate rises will make those who are wasteful more appreciative of our resources, which are not infinite.

Those of us who have lived abroad and have paid much more for our utilities have learned the value of these utilities and have learned how to be thrifty, turning off lights when not using them and not leaving the tap running when shaving or washing the dishes. These are simple behavioral adjustments that any human being can learn.

The introduction of a value-added tax that the Kingdom along with other Gulf Cooperation Council states are planning to introduce perhaps by next year, is also a very good move to raise income for our respective governments. This obviously would be like a sales-tax added to the cost of services and goods, except for food and other essential items. The Kingdom is also going to raise taxes on tobacco and sugary drinks, which is excellent news. There are far too many young smokers in our country, fueled in part by very cheap cigarettes. In the UK and the US, cigarettes are taxed heavily in an official effort to discourage smoking. In New York City a pack of cigarettes can cost $15 because of the taxes. Can you imagine our youth having to pay SR56 for a single pack of cigarettes? Many would stop smoking overnight. Of course, I do not think our taxes on tobacco will initially be as high as that, but I do hope the tax is significant enough to make a sizeable portion of our population reconsider their smoking habits.

Some foreign commentators have been quick to ring the death knell for the Kingdom because of the new budget, calling it austerity-driven. Obviously these people are keen to rush to these conclusions because of ill-will toward us. But they seem to have forgotten that the country has more than $600 billion in foreign reserves, and that we have gone through low oil prices before in the early 1990s, when the barrel of oil hit a low of $20. We survived that and will, God willing, survive this downturn again.

The new budget for sure has seen come cutbacks in spending on the crucial education and health sectors, but nothing very drastic. I was looking at the budgets for our state universities and was surprised that so much was being allocated for each. King Saud University in Riyadh was allocated more than SR5 billion in the new budget, while King Abdulaziz University in Jeddah got more than SR4 billion. Quality education is expensive.

As good citizens we have to do our part to help our leaders balance the books. We cannot expect the state to keep giving us everything we need for free. This is unrealistic and will bankrupt any society that tries to do so. But we also cannot forget the poorer Saudis and the difficulties they will face with higher prices and the inflation that they are sure to bring. The government has assured the public that measures will be put into place to protect them. I hope they will be enough to protect the truly disadvantaged, and that those of us with the means pay our share of these new fees and taxes in order to make a better country for all Saudis.

Prices going down in Brazil? You must be kidding!

Dilma baixar

Brazilian President Dilma Rousseff addressing the nation on television last September to announce cuts in power rates.

THERE has been on ongoing campaign by the federal Brazilian government to cut electricity rates in the country, some of the highest in the world. One has to wonder why electricity is so expensive in a country that produces the majority of it from dams, without the high costs of buying fuel to burn to generate power. Water in the many rivers of Brazil is after all free. The problem is that the regional power generators, who build the huge dams that produce the power, claim that building the dams is very capital intensive and thus have asked and been paid very high rates for their power to help defray their initial investments. But that was 30 years ago, and they still want to be paid those absurd rates for the power they generate. The federal government thinks otherwise.

And so too does Paulo Skaff, the president of the Sāo Paulo Federation of Industries, who has led a long campaign for lower power rates both in Congress and directly to the public through a website called ‘Energia a Preço Justo’ (Power at a Just Price) and appearing in primetime TV ads warning that certain power producers are plotting to stop a cut in power rates. Brazilian President Dilma Rousseff finally signed a provisionary measure in September ordering power rates to be cut in March 2013 by 19% to 38% for industry and 16% for residential consumers. She said the federal government would stop charging two types of taxes on electricity in order to pass on the savings to the public, from an array of taxes that are piled onto the price of electricity.

The federal government also tried to strong-arm regional power producers to sign new supply contracts at sharply reduced rates, in some cases 70% lower than the old ones. Most producers protested that they were still writing down their investments in building new dams, even though most of them are more than 20 years old. To lessen the alleged blow to their bottom line, the federal government is coughing up R$30 billion (around US$15 billion) in compensation to be paid to the regional power producers. Some have accepted, while others in the states of São Paulo, Minas Gerais, Santa Catarina and Paraná have outright refused to sign the new supply contracts. The federal government is now running TV ads with a famous Brazilian soap opera star, claiming that the power rate cuts are coming as announced in 2013.

Over-confidence, you say? Or just propaganda? A bit of both in my opinion.  After The Economist recently told President Rousseff she should fire Finance Minister Guido Mantega after GNP growth figures showed Brazil will barely grow much over 1%in 2012, it seems that the spin masters in Brasilia have been working overtime to assert how healthy the Brazilian economy is. Yet the warning signs that everything is not quite so great are all around for everyone to see. Petrobras, the state-controlled oil giant, has been complaining for months about the money it is losing at the pump because of the government-controlled prices. Brazil has been forced to import large quantities of gasoline this year after the high price of ethanol forced drivers across the country to switch to gasoline. Finally, after months of rumors that gasoline prices would be hiked, the government announced that a hike will take place for sure in early 2013. At R$2.85 a liter, gasoline in Brazil is already some of the most expensive in the world, and that’s mostly due to federal and local taxes on gasoline that reach up to 40% of the final price. I hear no one talking about slashing these taxes in order to make gasoline more affordable, certainly because governments have become addicted to the many taxes they levy across the nation.

To top all of this, O Globo newspaper reported in December that Rio de Janeiro consumers of electricity will actually face HIGHER power bills next year, up to 15% more expensive, because of the current lack of rainfall in some states that has led to low water levels in reservoirs at dams. In turn, this has forced power generators to fire up oil and gas powered power plants, which cost much more to run than dams.

The truth is that Brazilian governments, both state and federal, are addicted to all of the income they generate from the excessive taxes they charge on everything, in part because they need to pay the salaries of all of the government bureaucrats. It is estimated that the federal government uses 50% of its annual budget just to pay the salaries of the nearly 500,000 people who work for it, and the ridiculously generous pensions they get when they retire (100% of their last salary).

Brazilians are mostly rather apathetic about all of this, running up huge debts just to stay afloat in an economy that is overpriced and inefficient. The Brazilian real, which has finally breached the R$2 to a dollar level, is still overvalued and could easily reach R$2.70 to a dollar if the Central Bank would just allow it to do so. I don’t see why leaders in Brasilia cannot see the fact that many Brazilians who can afford it fly to Miami regularly to go on shopping binges ‑‑ snapping up clothes, sneakers, electronics and computers, that are 30 to 40% cheaper than in Brazil – would most likely buy locally if prices were reasonable.  If only they realized that by cutting local taxes and making Brazilian manufacturers more competitive, the country would export more and produce, for example, clothes which were affordable. Then instead of running off to America to shop, Brazilians would start to spend more of their money right here at home. Is that too hard to grasp?


Boo-hoo!: Sean Puffy Combs complains that gas prices are too high

THE American singer Sean Puffy Combs complains about the high cost of gasoline in this video diary entry on YouTube. According to him he can no longer afford to fly his private jet from New York to Los Angeles twice a month, as he’s been doing to pursue an acting career in Hollywood.

Puffy says that a roundtrip costs him $200,000 and that he allegedly cannot afford that. In the video he appeals to his “Saudi sisters and brothers” to send him some free oil so that he can fly in his private jet once again.

I don’t think that he’s going to get a shipment of jet fuel anytime soon as the Saudis have shown again and again how hard-nosed they can be when it comes to oil prices. A super-rich entertainer such as Puffy might get invited to perform at the private bash of a Saudi royal, but he sure isn’t going to get free oil, he can bet on that!

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