Managing the effects of the oil crisis
The Philippines is in another difficult economic situation brought about by geopolitical events abroad. The current scenario recalls how the country was caught in the crossfire between the Arabs and the Israelis in 1973, the 1979 revolution in Iran, and the 1990 Gulf War.
As an oil-importing country, the Philippines continues to be vulnerable to external developments. The ongoing conflict between Russia and Ukraine has resulted in higher fuel prices that, in turn, have led to more expensive basic goods. The impact hits the poorest sectors the most, especially since they spend more than half of their income on food.
Citing an Asian Development Bank study, economist and Marikina Rep. Stella Quimbo said a 10-percent increase in fuel prices would result in 200,000 more poor Filipino families. The increases we’ve had so far are beyond 10 percent.
Two options were considered to ease the burden of rising costs on consumers: 1) temporarily suspend the excise tax on fuel as provided in the TRAIN law that however lapsed in 2020, and 2) implement targeted subsidy programs.
The first option requires Congress to hold a special session, but the window of opportunity is no longer available as the election period has started and most legislators are now preoccupied with their own campaigns.
The second option, thus, becomes the more practical solution because it is quicker to implement and likely to be felt by beneficiaries sooner. President Duterte has ordered his Cabinet to implement targeted subsidies, such as the Department of Transportation’s fuel subsidy program for public utility drivers and the Department of Agriculture’s fuel discount program for farmers and fisherfolk.
The government also earmarked additional cash aid for some 4.8 million households covered by the Pantawid Pamilyang Pilipino Program, on top of what beneficiaries currently receive. Economic managers first announced an additional P200 assistance per month, but the President wanted it raised to P500 per household.
Funding for the original P200 per household per month will come from the excess value-added tax collection of the government, estimated at P26 billion for 2022. But with the President’s order to increase this aid, additional sources would have to be tapped.
The following are among the possible sources of additional funds for the subsidy programs and their enhancement:
- Increased dividends from government-owned and -controlled corporations, as well as government financial institutions
- The government’s contingent funds and reallocation of a portion of the P900-billion unobligated funds
- Implementing a mandatory 5-percent savings across all agencies
- Local government units (LGUs)
With the full implementation of the Supreme Court ruling that mandates a bigger share for local government units in the national tax collection, the LGUs would now get a larger national tax allotment (NTA) at P959 billion for 2022, up from P695.5 billion in internal revenue allotment last year. As of January this year, P239.8 billion of the NTA has been released.
Amid the economic crisis, the national government can appeal to LGUs to contribute a portion of their unprogrammed NTA to the targeted subsidy programs. Local chief executives can also use part of their allotment to create programs that will ease the burden of their constituents.
The national government should fast-track the completion and implementation of the national ID program to ensure that the assistance will reach the target beneficiaries on time. Congress can help realize this by closely monitoring the implementation of the subsidy programs as well.
However, if oil prices keep on rising or if the implementation of the subsidy programs does not proceed smoothly, the President may wish to reconsider pushing for the reintroduction of a provision in the TRAIN law that will allow the suspension of the excise tax on fuel when the global price of oil reaches a threshold mutually agreed upon by the executive department and Congress. This opportunity should come when Congress resumes sessions after the elections and before the proclamation of the next President on June 30, 2022.
Of course, the President could simply leave the decision to the next Congress. If the oil price situation remains manageable, that would be desirable as we would then have a new set of officials with a fresh mandate. The next administration would also have more time to discuss more effective support for Filipino households when oil shock situations arise.
In this regard, the next President should consider the reasonable suggestion of some lawmakers that the increased tax collection from the oil price surge should be considered an unexpected windfall that can be used to relieve the burden of the public, especially the poor.
Congress can also consider possible ways to ensure that the excise tax will benefit those that need it most—the transport, agriculture and fishery sectors, and the bottom 50 percent of Filipino households—at the least cost to the government.
For one, Congress can consider limiting the coverage of the excise tax suspension only to diesel, kerosene, and LPG, which are used by the most vulnerable sectors, as proposed in House Bill No. 10488. The excise tax on gasoline can be retained or reduced, instead of suspended, but only if oil prices exceed a predetermined threshold.
In difficult situations like where we are now, it is crucial for the executive and legislative branches to collaborate closely and continuously to arrive at the most practical solution to the problem, and to bring relief to the poorest families for them to survive these more challenging times.
—————-
Gary B. Teves served as finance secretary under the Arroyo administration
