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This measure will go into effect on July 25. The excise tax cuts range from Bt2.30 to Bt3.30 per litre and will bring down retail oil prices at petrol stations, provided crude prices do not rise further to offset the cuts. This also translates into a 5 to 6 per cent reduction in retail fuel prices.

This policy is bad because it encourages Thai consumers to spend more on fuel at a time when we really need to save energy. It sends a conflicting signal and will make a mockery of the government's energy-saving campaign. In fact, the government should have announced Sunday as a car-free day where drivers taking their vehicles into the inner city would face heavy penalties. It is time for Thailand to impose mandatory energy saving measures. Thailand's energy consumption is already one of the region's highest, approaching 8 per cent of GDP.

This portion of the fiscal stimulus package - equivalent to about 0.5 per cent of the gross domestic product - will not serve low-income people, who can't afford to own vehicles anyway. Besides, the tax cut on fuel will create demand and bring about further inflationary pressure.

The only explanation for this excise tax cut measure is that the government would like to win popular support from urbanites. We do not deserve a tax cut to fill up our tanks. If oil prices are too expensive, we should learn to cut back on our fuel bills.

The other portion of the economic stimulus package goes to supporting low-income families such as reductions in water and electricity charges, a waiver of bus and third class train fares, and a delay in the adjustment of the cooking gas price. Although millions of low-income Thais will benefit from this populist package, it will be a one-time consumption treat that will end in January 2009. The package in effect does not provide any material impact on improving the living standards of the Thai people. It is almost like throwing money into the river.

"The impact on growth from the package should be negligible," said DBS Group Research in a report issued yesterday. "The cut in prices though should lead to a one-off reduction in sequential month-on-month inflation of about 0.3-0.5 percentage points. Helpful second round effects cannot be expected as the year to date increase in crude and retail fuel prices should overshadow this small cut in retail prices.

"Most of the impact should only come through in the August inflation numbers. Despite this, in year-on-year terms, inflation is likely to enter double digits in August and, in fact, stay there through the third quarter of 2008. If oil prices continue to rise, say towards US$200/bl by end-2008, then CPI should stay around 10 per cent year-on-year in the fourth quarter of 2008 also. Otherwise, headline rates should fall in the fourth quarter of 2008."