FEF’s ‘full-cost recovery’ fetish is myopic, misleading

/ 12:02 AM February 17, 2015

The Freedom from Debt Coalition (FDC) believes that the Foundation for Economic Freedom’s (FEF) fixation on the “user pay principle” exposes the nearsightedness of its approach to economics and development policy (“Subsidy benefits mainly nonpoor riders,” Inquirer.net, 2/8/15).

Rather than promoting “efficiency” and “equity,” ending state support to public mass transits would compel minimum and below-minimum wage earners to shift back to emission-intensive and congestion-inducing road-based modalities. This is not only macroeconomically inefficient (less people transported per fuel consumed); this also inequitably lengthens travel time for low-earning commuters.


The 2013 Family Income and Expenditure Survey already shows that even nonminimum wage earners are heavily burdened by the increase, with those earning P20,000 a month facing a maximum of 96-percent increase in their transport costs. But even if we assume that they can absorb the hike, this will impact on their ability to consume. Our economy is heavily dependent on consumption: Household Final Consumption Expenditure amounts to 68 percent of the gross domestic product, as of third quarter 2014.

Additional transport expenses will likewise impact on the household’s ability to save for important necessities such as health, housing and education. For someone who earns P15,000, P26 a day for 20 working days in a month can already cover one’s monthly contribution to either SSS, PhilHealth and Pag-Ibig combined. These are household budget items which have high positive externalities.


In any case, FEF’s “full-cost recovery” argument falls flat because in the first place, the hike will not go to operations and maintenance but to satisfy the government-guaranteed 15-percent total return on investment for the private owners of Metro Rail Transit Corp. for 2000-2025, an onerous amount due to previous administrations’ following the type of policy precisely advocated by FEF—a private sector-driven approach even for critical infrastructures.

FDC avers that the decision on whether or not to provide subsidies should be based on a comprehensive assessment of macroeconomic impacts, and not on small-scale microeconomic considerations FEF would rather focus on.

More importantly, FDC asserts that the MRT is a public good that government should take control and subsidize as a public service.


secretary general,

Freedom from Debt Coalition

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TAGS: ‘user pay principle’, foundation for economic freedom, Freedom from Debt Coalition, letters, mass transit, state subsidies
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