Waiting for shit to hit the fan

According to plans, the New Year will witness final lifting of subsidies on fuel. The 2008 budget carries no provisions for subsidies, and the government is promising to spend 300 million dinars on a “social safety net”, which includes a pay raise for government workers to offset the expected effects.

According to reports, the pay raises will be in the ball park of 30 dinars for people making less than 300 dinars per month, and lower amounts for people who make more. On the other hand, the minister of energy expects that the cylinder of liquefied petroleum gas, which is currently sold at 4.75 dinars will go up to a whopping 9.90 dinars when the subsidies are lifted. If a family is using LPG for heating, it can easily use 6 cylinders per month, effectively wiping out the pay raise in a single blow. Of course, LPG is only one commodity of many that will become more expensive.

The current pricing scheme (as far as anybody can tell) overprices gasoline and uses to surplus to lower the costs of other products such as diesel and kerosene. The previous government tried to impose a “quality tax” on gasoline, but the parliament refused. I read today that the government will try this again. It is not clear whether the point is to use the money to continue subsidizing diesel and LPG or just to raise money. The government sometimes imposes taxes for a specific purpose and then decides to pocket the money instead (like the University Fees Tax).

Anyway, most people are pessimistic, and expect a massive wave of inflation that will be difficult for poorer people to handle. Surprisingly, nobody thinks that a special parliamentary session to discuss inflation will lead to anything useful. I wonder why.

So we are in a wait and see mode. Everybody expects a lower standard of living, the question is how much lower, and how will society cope?