95% - the size of the surcharge

This week the government revised the surcharge imposed on the consumption of water and electricity. That 95 per cent in the title is a reference to the size of the surcharge. On a light note, I did meet some people who asked me how I could justify such a decision in my weekly contributions to this newspaper. Others have told me that this is such an unpopular decision that it is going to cost the party in government thousands of votes. On a more serious level, there is no doubt that the increase in the surcharge is going to affect the public's purchasing power and could bring about an element of uncertainty in consumer confidence.

I believe that the increase in the surcharge needs to be assessed by departing from some basic facts, starting with the issue of uncertainty (I know facts and uncertainty do not necessarily go hand in hand). The price of fuel is one big unknown factor. Financial analysts working in this sector are not all in agreement as to which direction the price of fuel will go in the coming months. There are those who believe that the price of fuel will reach the US$200 mark by the end of the year. There are also those who advise that it would be risky to hedge the price of oil as it might be moving downwards in the coming months.

These contrasting views are the cause of the uncertainty, because companies and individual consumers cannot be sure as to what type of bill they could realistically expect to be facing in the coming months from the fuel products they consume. Within such a scenario, investment and consumer spending start to mark time or move backward, rather than move forward. And there does not seem to be any indication as to when this period of uncertainty will end.

Second fact, the surcharge has remained unchanged since last August when the price of fuel stood at US$70 a barrel. Today the price is around or above the US$140 mark, that is double. The government has therefore subsidised the consumption of water and electricity for the last months through the taxation that we pay.

This subsidy amounted to €37 million in nine months. Worse still, those who use more electricity have received a higher level of subsidy in absolute terms. So the more income one has (generally a higher level income means a higher use of water and electricity) the more subsidy that he or she got - not exactly a socially just situation.

Therefore, given that the price of oil has continued to rise, it is only correct that we pay more for our water and electricity.

Fact number three is that there are around 30,000 households who receive an energy benefit, thereby paying practically none of the surcharge. That energy benefit will remain. Thus those families that are most at risk will continue to be supported and as such the negative social impact would be mitigated. The increase in the surcharge would ensure that the more use we make of electricity, the more we will pay. It is possible to reduce our consumption - only if we want to.

Fact four is that the capping that existed with regard to industry and hotels, in order to lighten the impact on those sectors that create jobs and that need to compete internationally, will remain. Obviously this does not mean that we will not have to pay extra as a country for the electricity that is being consumed by these businesses. It is just a case where the taxpayer will have to pay the difference. However, businesses cannot complain that the surcharge will have put them out of business.

Fifth fact is that EneMalta Corporation accounts show that unless it receives financial support from the Ministry of Finance, it cannot be sustained. Some will say that this is due to over-manning, inflexible work practices, and inefficient equipment. This is where critics have to come out into the open. If they are advocating that there are a number of people who should be thrown out of their job, then they should say so. However, criticising the increase in the surcharge without giving a solution is certainly not sustainable economics.

Fact six is the total amount that one pays in surcharge compared to what is spent on other items. I will make just one comparison. A family of five pays around €1,500 a year on ICT, taking into account subscription to internet, mobile and fixed line telephony and television connectivity. Today very few pay more than that in electricity surcharge, and with the new level, there will still be very few people who will pay more than €1,500.

Through the decision to increase the surcharge to 95 per cent and not higher, the government chose to create a balance between three considerations - the need to charge directly for usage and not through taxation, the need to safeguard those families at risk and the need to safeguard activities that create jobs. Within today's context, it appears that this was the best decision to take, even if unpopular. The politics of sustainability requires such unpopular decisions for the long-term good of the country.