Budhan

A couple of years ago while I was working with colleagues on the energy policy, I became absolutely convinced of the wisdom of increasing the tax on petroleum and placing it in a dedicated road fund. My colleagues were very wary of such a policy as the fuel-tax demonstration of 1999 was etched in their minds.

One evening, I had to teach a class of about 50 engineering students at the University of Technology. That evening, the policy issue was fresh in my mind and I decided to ask the students for their reaction to increasing the tax on petroleum and placing it in a dedicated road fund. The entire class was vigorously opposed to it; the class went into an uproar! I took a vote and the entire class opposed the policy.

I decided to deviate about 10 minutes from the lecture and take the class through a course of very basic reasoning. The essence of the reasoning goes something like this:

A pedestrian does not need wide asphalted road to commute. That is probably more for the aesthetics.

Motorists need good roads as a pothole-ridden road damages vehicles and significantly increases vehicle-operating cost.

Accordingly, a motorist should pay more towards road maintenance than a non-motorist.

One who owns two or three vehicles should pay more towards the maintenance of the road than one who owns only one vehicle.

One who drives a bigger vehicle should pay more than one who drives a smaller vehicle.

One who drives more on the road should pay more than one who drives less.

One who uses public transport more should pay more than one who does not own a vehicle and commutes less.

It is grossly unfair for a non-motorist to pay the same towards road maintenance as the motorist. The non-motorist pays more we fund road maintenance from the Consolidated Fund.

If we accept the above, then we have no choice but to conclude that funding road maintenance from a tax on fuel is a more equitable system than funding road maintenance from the Consolidated Fund.

Why should an individual who does not own a vehicle and has to 'small up himself' and share a public transport with 40 others pay the same amount as the man who drives a big SUV taking up half the road?

Consistent with the user pay principle, the one who consumes a public service should either pay for it or pay more towards it. This is particularly critical when taxes are limited and the budgetary demands on the Government are enormous as is now the case.

There is a direct variation between the use of the road and the volume of fuel used.

By increasing the tax on petroleum and dedicating some or all to fund road repairs, ensure that he who uses the road more pays more towards its maintenance.

In the end, it must be taxpayers who pay for the road maintenance. There are only two main options - everyone pays the same amount based on their taxes paid or those who use the road more pay more.

A tax on petroleum for road maintenance is a more equitable and just system than funding road maintenance from the Consolidated Fund.

Following the above basic reasoning with the students, I put the policy matter back to the vote. The entire class supported the policy of taxing petroleum to fund road maintenance!

LESSONS LEARNT

Scene from the fuel-tax protest of 1999. - File

I learnt the following lessons from that experience:

It is easier to make tough policy decisions when you have a literate society. (The leader of the opposition reminded us in her contribution to the Budget Debate that "if you think education is expensive, try illiteracy".) It was easy for the engineering students to appreciate the limited policy options and choose the one based on the user pay principle partly because of their quantitative orientation and their ability to reason and to arrive at a logical conclusion.

Tough policy decisions must be properly marketed when you have a largely illiterate and irrational population.

In a largely illiterate population which makes decision based on emotions, opinion formers who promote their views via the mass media must act in a highly responsible manner so as not to mislead the masses and thereby creating major challenges for public governance and social order.

EXPENSIVE ROAD MAINTENANCE

Road maintenance in Jamaica is particularly expensive for two reasons:

Jamaica has one of the densest road networks per capita in the world. If we want to keep this network operational, taxpayers must be prepared to fund it.

Jamaica experiences severe damage to the road system each year in the rainy season. This requires substantial amount of money to repair.

While there is justification to fund road construction from loans, road maintenance should not be funded from loans. A tax on petroleum is the best option.

Resource Allocation via Demonstration

Jamaicans often demonstrate when the road in their community is bad. They often blame their members of parliament and the Ministry of Works for not responding to their needs. In a resource-constraining environment, oftentimes budgetary resources cannot be optimally and objectively allocated. Resource allocation is sometimes based on political judgement to quiet and appease the most vocal. Hence, when a group of citizens demonstrates and blocks a road to get attention, oftentimes resources are diverted from elsewhere to appease the vocal ones - a kind of fittest of the fit.

With a tax on motor fuel for road repairs now in place, such problems can be solved. Let us say that based on available resources, 'x' number of roads are prioritised to be repaired in a given year. However, road 'Y' is not on the list and the citizens cannot wait until the next budget year. They could mount a strong demonstration to increase the fuel tax for a specific time to collect the amount of money needed to repair their road. Their MP could assist in making the case.

Let us say that a 10-cent increase for a month could repair the road, based on the number of persons that would benefit, the Government could assess the demand to see if the public is willing to accommodate the increase.

So if you want your road repaired, demonstrate for an increase in the fuel tax for a specific time and by a specific amount. Instead of lambasting the Government and your poor member of parliament, appeal to the society to facilitate the increase. If you have a good case, the society may not object to your request.

This could assist in getting us to appreciate that choices involve trade-offs. Also, when one group demands a public good, it will be appreciated that other taxpayers will have to fund it and make a sacrifice. The Government cannot provide the money as the Government does not make money and does not earn money. It simply collects money from taxpayers to do what tax payers want to be done.

Conclusion

If you want good road, demonstrate for an increase in fuel tax!

The higher the tax, the better the roads get!

The more people drive, the better the roads get!

If you are inclined to disagree with the above, think it through carefully first.

Reginald Budhan is permanent secretary in the Ministry of Industry, Investment and Commerce. The opinions expressed here are private and do not reflect official policy position.