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Economist: Premier’s gas price policy benefits the wealthier

Targeted approach: economist Craig Simmons (File photograph)

A leading economist has criticised government efforts to reduce the cost of living as “blunt and costly”.

Craig Simmons also poured cold water on the Premier David Burt’s claim that the reason inflation is reportedly so low in Bermuda is because he put a freeze on gasoline prices three months ago.

Mr Simmons, a lecturer at the Bermuda College, said that Government needed to target relief for the most needy, rather than introduce blanket price controls that benefited everyone — including the wealthy.

He said: “Trying to slow price increases using cuts in duty is one way of bringing relief to households. But it’s a blunt and costly way of going about it.

“It’s blunt because all households will benefit, whether they’re flush with cash or living in poverty. I don’t see why someone like me, pulling up to the pump in my luxury car, should get what amounts to a cheque in the mail from the Government to lessen my fuel bill.

“If the Government allowed the price to pass through to me, then I’d likely not take a joyride to St George’s to pass idle time. I’d economise on my consumption of fuel both decreasing the island’s reliance on fossil fuel and carbon footprint. Not everyone needs the benefit of duty relief on fuel.”

Mr Simmons argued that, because wealthier households use more gasoline, they actually benefit more from price freezes than poorer residents. Mr Burt, who is also the Minister of Finance, had previously said that government policies would help those most in need.

Mr Simmons said: “According to the most recent household expenditure survey, high-income households spend almost three times more than low-income households on fuel a week — $133.12 versus $47.73 in 2013 dollars.

“For transportation the difference is 2.5 times — $163.31 versus $65.31. Given that the duty on fuel is 25 per cent, high-income households would get almost a $150 monthly rebate from the Government versus just over $50 for the low-income households. That seems hardly fair.”

Mr Simmons said that the Government was wasting money by giving benefits to people who did not need them.

He said: “It would be far better to target vulnerable households who truly need assistance with, say, a cash handout. Instead of tens of thousands of households getting a rebate, cash handouts would go to about a third as many households.”

But he acknowledged that identifying those most in need was a complicated process that would take time.

He said: “Who are the vulnerable? For starters, we could use a simple metric developed by the Department of Statistics — any household earning less than two thirds of the median income. But there’s still the problem of identifying specific households. This process takes time.

“Duty relief is costly. I assume the Government wants to achieve its goal at the lowest cost to taxpayers. Duty relief for all households is costlier than relief for vulnerable households.”

Mr Simmons also dismissed Mr Burt’s claim that inflation was far lower than other jurisdictions because he imposed a freeze on the price of gas at the pump.

On Monday Mr Burt declared: “This tangible relief at the pump is an important saving to a household budget. This is one of the reasons that Bermuda's inflation rate is, and will remain, lower than other jurisdictions.

“It is because this Government's actions have prevented the increase in fuel prices in Bermuda, which is a major factor in inflation around the world.”

Mr Simmons replied: “According to CPI, fuel and power make up only 4 per cent of consumer spending. By comparison, housing accounts for 27 per cent of spending. Holding gas prices constant cannot explain the difference between local inflation and that observed elsewhere.”

Critics have argued that the Government’s recent inflation figures — currently around 2.5 per cent — are flawed because they are calculated using outdated data. Inflation is much greater in countries such as the United States, Canada and Britain, which provide the majority of Bermuda’s imported goods.

Last night Cole Simons, the Opposition One Bermuda Alliance leader said the Government’s wage bill could skyrocket if salaries were kept in line with real inflation.

Mr Simons said: “What exactly is the Government planning to do about the salaries and pensions of government workers to keep pace with inflation?

“Typically, these workers are accustomed to receiving an annual cost-of-living increase of between 1.5 and 2 per cent. How does Government plan to bridge the gap between that figure and the actual rate of inflation in Bermuda which is now somewhere between 7 and 10 per cent?

“Are they going to receive an increase of around 5 to 6 per cent to comply with their employment contracts?

“If not, the purchasing power of these workers will be dramatically reduced because, for every one per cent of increase in the rate of inflation, there is an equal decrease in purchasing power.”

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Published June 16, 2022 at 12:26 pm (Updated June 16, 2022 at 12:26 pm)

Economist: Premier’s gas price policy benefits the wealthier

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