HAPHAZARD APPROACH TO RISING FUEL PRICES - STANDARD EDITORIAL

MANILA, APRIL 16, 2011 
(MANILA STANDARD)
PRESIDENT Aquino last week ordered his economic team to study all options to ease the impact of rising fuel prices on the poor. Those include various subsidies, an increase in the minimum wage, price controls, and a reduction in the value added tax.

The order, however, seemed half-hearted at best, as the President had already made up his mind not to reduce the 12 percent value-added tax. Doing so, he said, was not the right solution, as it might lead to “artificial pricing.”

Because he did not elaborate, we are left to speculate how reducing the tax rate on goods and services would lead to artificial pricing, or how this would differ from the fuel subsidies his administration is preparing to offer to drivers of public utility vehicles.

A week later, however, it became apparent why Mr. Aquino was so reluctant to let go of the tax. The Finance Department reported that his cash-hungry government enjoyed a P1.2-billion windfall in the first quarter this year because it collected more value-added taxes as a result of rising fuel prices.

A value-added tax, as economists will point out, is a tax on consumption and as such carries with it an element of socialized pricing. In normal times, people who consume more—presumably the wealthy—must pay more tax, too. Those who consume less because they cannot afford to do so pay less tax. In inflationary times, however, a value-added tax creates a distortion because people pay more taxes not because they are consuming more, but because they must shell out more money for the same quantities of goods they have been consuming. From this perspective, the P1.2-billion windfall that the government enjoyed is every bit as “artificial” as any price distortions that the President is worried about.

In the meantime, the President proposes to spend some of that windfall for a hastily conceived fuel subsidy, the particulars of which remain unclear. In theory, giving jeepney and tricycle drivers a fuel subsidy would forestall demands for an increase in fares, which in turn would benefit the commuting public as well, but the devil is in the details.

The administration has pegged the cost of the subsidy at P450 million, but said little about the cost of administering it. How much, for example, will it cost to produce more than 200,000 smart cards and to screen drivers who qualify? A proposal to include fishermen and farmers in the subsidy is clouding the issue further, as is a requirement that local government units must share in the burden of subsidizing tricycle drivers. By the time all this is sorted out, any benefits of the subsidy might seem negligible indeed, given the rate and constancy at which oil companies are raising pump prices.

Sadly, the fuel subsidy is emblematic of how poorly this administration is at thinking its programs through. Instead of creating job programs that would enable poor families to earn a decent living, it has chosen the more politically expedient route of simply giving away billions of taxpayers’ money to poor families, frittering away public resources that could have been put to more productive use.

A recent survey by the Social Weather Stations shows that more Filipinos saw themselves as poor in March than in the months shortly after Mr. Aquino took office. More than half the families said they experienced hunger.

The President’s reaction to this news was telling: rather than ask how the administration could do a better job, he questioned the findings.

At this rate, the number of poor people will surely rise, as more and more of us fall victim to this administration’s ill-conceived programs and policies.


Chief News Editor: Sol Jose Vanzi

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