OPINION: The government is counting the cost but missing the growth

Subsidies, tax relief, and social discounts should be judged by both their immediate fiscal cost and their longer-term economic impact.

Whenever the government considers subsidizing electricity, fuel, transportation, or other essential costs, the discussion usually begins with the same concern: how much revenue will be lost, and how much additional spending will the state have to absorb?

That concern is legitimate. Public funds are limited, and subsidies can be expensive, inefficient, or poorly targeted. Broad fuel and electricity subsidies may also benefit wealthier households more because they consume more energy.

Still, the analysis often ends too early.

Government tends to focus on the immediate fiscal cost while giving less attention to the economic activity that lower household and business expenses may generate.

Lower electricity prices give households more disposable income. Lower fuel costs reduce transportation, logistics, and production expenses. Businesses preserve working capital, while entrepreneurs gain more room to hire, reinvest, expand, or remain in business.

The money saved by a household may be spent on groceries, medicine, transportation, education, meals, or services. That spending becomes revenue for another business, which pays workers, suppliers, landlords, and taxes. Those workers and suppliers then spend their income elsewhere, creating even more economic activity.

Of course, subsidies do not automatically pay for themselves. They must still be funded through taxes, borrowing, or reduced spending elsewhere. Their value depends on whether the resulting economic and social benefits justify their fiscal cost and the loss of other possible uses for public funds.

A fuller evaluation should therefore consider consumption, investment, employment, business survival, and additional tax revenue alongside the direct cost of the program.

Larger economy, stronger tax base

The same issue appears in discussions about personal taxation.

When workers retain more of their income, they have more money available for daily expenses and discretionary purchases. That spending supports businesses, strengthens demand, and may create additional employment.

The government may collect less directly from a particular taxpayer, yet part of that amount may return through value-added tax, corporate and personal income taxes, taxes on the compensation of newly employed workers, and local business taxes generated by higher sales.

Revenue agencies operate under annual collection targets. This naturally encourages them to focus on immediate and measurable revenue. The possible benefits of lower taxes, wider exemptions, or targeted subsidies are more diffuse, uncertain, and may take longer to appear.

This produces a form of static fiscal accounting. Every amount forgone is recorded immediately, while the economic activity created by leaving more money with households and businesses is often treated as secondary.

A healthier fiscal strategy should aim to grow the economy from which future taxes will be collected. Stronger household demand, more productive businesses, and higher employment can support a broader and more sustainable tax base over time.

Private burden

The treatment of mandatory discounts for senior citizens and persons with disabilities reflects the same problem.

These discounts serve an important social purpose. Senior citizens and PWDs may face higher medical expenses, reduced earning capacity, mobility limitations, and other financial burdens. There is a valid public interest in supporting them.

The current system, however, requires private businesses to finance a significant portion of that support.

Covered establishments must absorb the mandatory discount from the VAT-exclusive selling price. The government separately forgoes the VAT, while the establishment may claim the discount only as a deduction from gross income.

A deduction merely reduces taxable income. It does not restore the full value of the discount granted.

For large corporations, the cost may be manageable across a broad customer base. For smaller covered establishments, including restaurants, cafés, clinics, pharmacies, transportation providers, hotels, and recreation businesses operating on thin margins, the impact can be substantial.

The burden is also uneven. A business serving a large number of senior citizen or PWD customers may shoulder far more of the cost than another business with similar revenues but a different customer base. An establishment that becomes particularly accessible or popular among these sectors may end up carrying a disproportionate share of the country’s social policy.

Economically, this resembles a mandated private subsidy or quasi-tax on covered transactions, even if it is not legally classified as a tax.

Muzzle on their margins

This burden is especially difficult for small and medium enterprises.

Every amount absorbed through mandatory discounts reduces the money available for wages, inventory, equipment, training, expansion, or working capital.

If the government intends to retain these benefits, it should substantially subsidize or reimburse the establishments providing them. Qualified individuals should continue receiving the benefit, while the state assumes more of the financial responsibility.

Possible mechanisms include tax credits, direct reimbursements, digital verification systems, or other arrangements that allow businesses to recover the actual amount granted.

The precise structure can be debated. The basic principle is straightforward: a public welfare obligation should be funded as a public expense.

Government regularly describes SMEs as engines of employment and growth. Policies that erode already thin margins make it harder for those same businesses to hire, invest, and expand. A benefit important enough to mandate should also be important enough for the state to finance.

Inclusive growth

Fiscal responsibility involves more than limiting spending or maximizing collections. It also requires understanding how money circulates through the economy and identifying which policies can expand household purchasing power, lower business costs, and support productive activity.

Government should continue examining the direct cost of every policy. It should also measure the economic activity created, the businesses supported, the jobs preserved or added, and the revenue generated through a wider tax base.

A government that focuses too narrowly on protecting present revenue may preserve its share of the economy while limiting the economy’s capacity to grow.

The goal is a larger pie, a stronger tax base, and an economy with more room for households and businesses to prosper.

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