Thursday
October 23, 2014

Opinion

Thursday, January 16, 2014

The immeasurable damage of subsidies

By Alberto Bottai
For the Herald

Usually, governments grant subsidies to groups of citizens who cannot afford the essential things they need to live. These subsidies are provided by governments but are footed by all the citizens — of course, this is where the money comes from. But this simple concept, well known by people everywhere, seems to be particularly difficult to grasp by us Argentines.

Not only do we often fail to see the “exceptional nature” of the benefit “for a disadvantaged group” — two conditions so deeply embedded in the concept of subsidies — but we also overlook the fact that what the government grants is not heaven-sent but rather is paid by all of us. Because it is easier to grant subsidies than remove them, Argentina in 2013 has spent a total of 140 billion pesos to that end.

The greatest problem is that only 10 percent of that figure, that is 14 billion, has been allocated to the Universal Child Allowance (AUH). The remainder — 126 billion pesos — has been spent in several different ways to alter the true value of things to make them cost less or even nothing, but it has been mainly in energy subsidies in general (electricity, gas, fuel).

So far, and taking into account the social importance of subsidies for children, the rest has been received by society at large. And it was paid by the whole of society, too.

So, the government, with the taxpayer’s money, determines which goods or services — and in which regions of Argentina — must cost less than their actual value.

Considering what has been said thus far, the trouble is that citizens are not free to choose what to do with their own money, such as spending a lot of it on heating or bundling up in the winter or allocating their savings to other expenses or investments. But if it is financed by all and distributed among all, then the outlay on one side is balanced out by returns on the other, right? Wrong!

The main problem caused by prices that do not reflect the actual value of goods or services is their trendsetting power. For instance, if one pays only small change for gas, there is a natural propensity to use it without limit or measure, and no-one will even think of tapping new energy sources such as solar or wind power, which require substantial start-up investment.

The scales of rates are so different that a citizen in the province of Santa Fe pays seven times more than a resident of Buenos Aires City who, in turn, pays forty times less than in Uruguay. In this latter case, it is also important to note that both countries share the Salto Grande hydroelectric project and that Argentina is now an energy-importing country.

In view of these facts, we can conclude that the recent chaos in Buenos Aires City could be solved without technical modifications but merely by increasing the scale of rates to make them realistic. Where does my argument come from to be able to declare something like that? Quite simple: Although the recent heat wave has caused a few blackouts here in Santa Fe, it has been nothing when compared with the mess in a more affluent Buenos Aires City, where electricity rates are seven times cheaper.

If Buenos Aires City residents could pay the real cost of electricity, the money they need to save in order to balance the family or enterprise budget could put an end to this seasonal power overload, which is the collateral damage of subsidies that we do not take into account and which is nonetheless truly significant.

*The author is an engineer based in the city of Santa Fe where he is involved in solar-powered projects.

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