Praise-whoring is not economic management
BEN KRITZ
WITH the curtain being raised on the campaign for the 2019 midterm elections, showing concern for the impact of inflation on ordinary Filipinos has suddenly become all the rage among politicians, with the excise tax on fuel being the focus of much of their attention.
Consumer activists and opposition politicians have been calling for the abolition of the fuel tax since its implementation at the beginning of the year, blaming it for the rapid increase in the inflation rate.
The idea has gone mainstream as inflation has gotten closer to seven percent, in part because it is becoming increasingly apparent that the “opposition” is correct, and because inflation is a natural bread-and-butter issue for election campaigns.
Even the administration, which has resisted discussing concerns about the fuel tax in anything but a dismissive way, expressed its “openness” over the weekend to suspending a scheduled increase in the fuel tax, noting the growing public dissatisfaction with high prices.
Credit for having changed the administration’s point of view was quickly claimed by a group of senators led by Sen. JV Ejercito (who is up for reelection, of course), who had earlier delivered a letter to President Duterte asking him to do precisely that.
Lost in the volume of pointed reminders about having the Filipinos’ best interests at heart is the fact that none of these parties have done anything extraordinary, and in fact, do not actually have to do anything at all for some relief from increasing fuel excise taxes to be implemented.
As everyone by now probably knows, the fuel excise tax program includes a provision for suspending scheduled increases in the tax rate “when the average Dubai crude oil price based on Mean of Platts Singapore (MOPS) for three months prior to the scheduled increase of the month [i.e., January in this case] reaches or exceeds $80 per barrel.”
The MOPS is a price index based on the daily average transaction price of petroleum products. Though the exact figures are only available for the price of a very expensive subscription to the service, the price for Dubai crude this month so far is about $80.36 per barrel. Its projected prices for November and December are about $81.51 and $81.12, respectively. Therefore the planned increase in the fuel excise tax in January should be suspended, according to the law.
Openly pleading for public approval for pretending to do something that was programmed to happen in the first place is cynical and unbecoming, and deserves to be ignored if not actually censured for wasting everyone’s time.
What the administration, which has a vested interest in seeing certain people elected to the Senate, or re-electionist legislators ought to be discussing if they were at all sincere in doing something proactive, is how the fuel excise tax provisions can be amended to eliminate the unintended consequences that have manifested themselves under the current structure.
As this year has progressed, it has become increasingly obvious that the administration’s economic team based the fuel excise tax program on assumptions that were so far off the mark that they could be considered the result of sloppy work.
The level of the fuel tax was set at a time oil prices were in the $50 per barrel range. Oil prices are volatile and it is virtually impossible to forecast them more than a few weeks or months ahead. But there is enough historical price data to suggest that optimism prices would remain very close to any benchmark price for very long is completely unaccountable.
The calculation of the fuel tax also did not sufficiently account for indirect effects, if it accounted for them at all.
The government has seemingly admitted as much in comments during budget hearings. But whether they admit it or not, the oversight is now obvious.
A tax on fuel is a tax on everything, the nature of the modern world being what it is, and must be set at an initial lower level to prevent inflation from accelerating. This is particularly important if programmed increases in the tax are indexed to inflation, as the increases under the current scheme supposedly are, as there is inevitably some feedback from an increase.
One way in which consumers can be given some instant relief even if tax rates are not otherwise adjusted is to apply the VAT before the excise tax, and not after. Many protesters have pointed out the government is simply taxing a tax under the current scheme. Changing that would not amount to big savings for consumers, but it at least would eliminate a nakedly oppressive levy.
Finally, the government’s estimates of its revenue needs appear to be larger than they need to be, although to be fair, this isn’t something that could have been foreseen at the outset. Uptake of funds for infrastructure projects has been slower than anticipated, and there are many projects – such as the Mindanao rail network – that will obviously never see the light of day, at least not in the next three years. A haircut, even one with a price tag of tens of billions of pesos, is not likely to draw blood.
While the fuel excise tax should be higher than where it was before the beginning of this year, and while the general concept behind the government’s tax scheme is reasonable, its dimension has not been, and should be reduced. If that is done, then politicians’ praise-seeking would have some validity.
Email: ben.kritz@manilatimes.net
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