Outline
1. Introduction
Thesis: I think reduction of subsidy for . fuel is not a wise decision to solve inequal income
distribution
2. Body paragraph #1
Topic sentence: The reason why the government took this decision is because the budget for
fuel subsidy in APBN is overbudgeted.
 The national financial condition is in crisis.
 The fuel subsidy is mostly enjoyed by high-income people
3. Body paragraph #2
Topic sentence: The increase of cost of production will shift the aggregate supply curve to the
left, therefore increase the equilibrium price, which cause cost-push inflation, and reduce the
national output.
 In production step, the factories use fuel to transport raw materials.
 In distribution step, the distributors will use fuel to outspread finished goods.
 The increase in cost of production will cause cost-push inflation
4. Body paragraph #3
Topic sentence: This phenomenon explained above is called stagflation, where the people
will be more suffered because they have to spend more money to buy the more limited
product
 The social inequality will be sharpened.
 It would be harder for low-income people to fulfill their needs.
5. Conclusion
The government should think of other alternative policies besides reducing subsidy.
Topic for my essay: does the government make the right decision to reduce to subsidy for fuel?
Possibly Create Many Side Effects, Is Reducing Fuel Subsidy A Normative Policy?
Do you know that fuel is one of the most significant natural resources that runs the national
economic development? The fluctuation of fuel prices will directly impact economic stability. The
latest reduction of fuel subsidy in the amount of approximately 30% during September 2022
fluctuates the inflation rate in the fourth quarter of 2022 to 5%. Instead of helping low-income
people, this inflation will sharpen social inequality. That is the reason why I think the reduction of
fuel subsidies is not a wise decision to solve unequal income distribution.
The reason why the government took this decision is because the budget for fuel subsidies in
APBN is over budget. This is done to save the national financial condition due to its budget reaching
IDR 502 million only for fuel grants. Besides, the subsidy is mostly enjoyed by high-income people
who have private vehicles. On September 3, 2022, Joko Widodo, the President of Indonesia, said that
more than 70% of this subsidy is received by well-off private car owners. This phenomenon doesn't
meet the objective of helping low-income people who don't own private vehicles and don't consume
fuel frequently. The country's money should be prioritized to provide subsidies to those
underprivileged people. Thus, the government has decided to cut the subsidy. Then, what happened
to the decreased budget? The Ministry of Finance chose to switch those subsidy funds to more welltargeted aid. They plan to give Direct Cash Aid (Bantuan Langsung Tunai) to low-income people so
that they can improve their standard of life. However, I would say that Direct Cash Aid is not an
effective method to reduce the poverty rate. That type of cash aid is only temporary help, but can
not change the way of life of underprivileged people. They would be very dependent on government
subsidies and cannot rely on themselves in financing for life expenses. I personally think that
microcredit commonly well-known as Kredit Usaha Rakyat is a more effective way to reduce poverty
in the long run so that they can be more productive and would not be a burden for the country's
development.
As mentioned before that fuel is one of the most essential natural resources in a country, we
could conclude that every economic activity will use fuel as part of the process to transport the final
goods to the consumers. In the production step, the factories use fuel to transport raw materials. In
the distribution step, the distributors will use fuel to outspread finished goods. If the fuel price
increases, the cost of production and distribution will increase too. In the economic theory, the
increase in the cost of production will reduce the supply. The aggregate supply curve will shift to the
upper left, therefore creating a new equilibrium. This new equilibrium results in higher prices and
less national output. Even though fuel is one of the commodities that create negative externalities in
the form of carbon emissions, based on the current national economic condition, it is still not a wise
decision to increase the fuel tax or reduce its subsidy because it is a vital resource to move economic
activities. That policy will initiate inflation, where the price of a nation's market basket is
continuously getting higher. The inflation caused by the reduction of fuel subsidies is identified as
cost-push inflation because it is mainly affected by the changing of cost during the process of
production.
Apparently, the change in fuel price does not only cause cost-push inflation. It leads to more
potentially severe conditions, a simultaneous inflation and stagnation, called stagflation. That is a
situation where the people will be more suffered because they have to spend more money to buy
the more limited product. This will suppress low-income people because it would be least likely for
them to fulfill their needs. Consequently, social inequality will be more obvious. This is exactly what
happened to the United States in the 1970s after the recovery post-World War II. Unemployment
rates rose, while a combination of price increases and wage stagnation led to economic doldrums
called stagflation. The crisis was compounded when oil-rich nations in the Middle East declared an
embargo against the United States due to its support of Israel. At this point, we can accurately
compare to Indonesia's condition because, at that time, there was also a restriction on fuel import
and export due to the Russia-Ukraine war. The unstable international economy would significantly
have a bad effect on the condition of developing countries such as Indonesia if the government did
not carefully take the best policy.
In conclusion, I think the government's decision to reduce fuel subsidies is not a wise option.
They may use alternative policies, such as increasing the income tax and luxury tax to charge more
tax to the high-income people, and then distribute the tax to reduce poverty in the country. By doing
so, the government can increase national income without burdening low-income people.