Fiscal surgery

Against the backdrop of growing global deficits and increasing climate change pressures, governments face the urgent challenge of optimizing public spending while maintaining social and environmental commitments. Global subsidies include both explicit subsidies (direct budgetary support) and implicit subsidies, which include the unpriced environmental and health side effects of fossil fuel consumption.

The structure of these subsidies reveals concerning patterns:

Energy subsidies account for approximately 70% of the total
Agricultural subsidies represent roughly 15-20% of global support measures
Water, transportation, and other sectoral subsidies comprise the remainder.

These distort markets, misallocate resources, and create harmful incentives. Our upcoming paper outlines a framework for subsidy rationalization, leveraging international case studies and practical strategies to help governments reform fiscal policies and protect vulnerable populations.

The Triple Effect

Fiscal Burden

Large subsidy programs, particularly fuel, electricity tariffs and gas subsidies, strain government budgets, often diverting funds from critical sectors such as education, healthcare, and infrastructure.
Social Burden

Although subsidies are often intended to protect vulnerable populations, they frequently intensify inequality.
Environmental Burden

Subsidies for fossil fuels and other environmentally harmful products, particularly fuel price subsidies, electricity and gas tariff support, tax exemptions, and implicit transfers to loss making energy utilities, artificially suppress consumer prices below costreflective levels.