Thursday, January 7, 2010

Perverse Incentives And The Sugar Subsidy

The Consumer Association of Penang is calling for a halt to the sugar subsidy:

"CAP president S.M. Mohamed Idris said sugar is 'nothing less than a toxic substance' and Malaysians are consuming an average of 26 teaspoons of sugar a day.

'The recent 20sen increase in each kilogram of sugar means the Government will still end up subsidising a sinful sum of RM1bil in 2010, based on a subsidy of 80sen per kilogram...The sweet indulgence has resulted in nearly 1.2 million Malaysians with diabetes and more than 98% of them are type 2 diabetes,' he said at the CAP office Wednesday.

Referring to diabetes as the 'mother of diseases,' he said it made no sense for the Government to provide the sugar subsidy."

Actually, why stop at sugar? And why stop at abolishing subsidies?

The type of perverse incentives resulting from below market-clearing price fixing that can create a social health problem (and thus increase health costs, which are also subsidised), is also present in other subsidised products. If that's the case, a duty on sugar makes more sense from a social welfare perspective - as does a tax on petrol, for much the same reasons.

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