A subsidy is a negative tax and the subsidiser loses money on the product. So how does a govt claim that a product, which is priced to include a substantial tax component, is subsidised?
Lets assume that buyers pay $4/litre of whatever fuel of which the producer receives $3 and the govt $1 as tax. If the producer actually requires $3.50 to break even, then:
1. The buyer is paying more than the breakeven price; and
2. Any price increases actually only assure the govt of its tax receipts.
Unless the anount that govt claims to spend as 'fuel subsidies' is greater than the total tax that it collects on fuel, I fail to see how a subsidy arises. Perhaps there's something I don't understand in all this so I may be wrong :)
