By Elijah Joseph C. Tubayan
Reporter
STATE economic managers will recommend to Malacañang next week that the government proceed with a P2 per liter fuel excise tax hike scheduled in January, reversing their initial recommendation that was approved by President Rodrigo R. Duterte just earlier this month, the Finance chief announced on Thursday.
Should the tax hike proceed, it will come just four months ahead of the May 2019 mid-term congressional and local elections.
The Development Budget Coordination Committee (DBCC) convened on Thursday to study whether the government should push through with the suspension of the second tranch of the fuel tax hike that had been decided in the wake of above-$80 per barrel Dubai crude prices seen in late September to early October.
Republic Act No. 10963, which took effect last January, had set a $80/bbl average price for three months as a trigger for automatic suspension of a scheduled tax increase.
The law, among other major adjustments to the local tax structure, imposed a P6 per liter fuel tax spread out through three years, with the first tranche of P2.50 per liter imposed last January, a P2 per liter increase set in 2019 and P1.5 per liter for 2020.
“… [A] special meeting conducted earlier today has decided to recommend the continued implementation of the second tranche of excise taxes on petroleum products under Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion Act. The recommendation comes in light of the favorable outlook in world oil prices, where Dubai crude oil prices have gone down by 14% from an average of $79 per barrel in October down to $68 per barrel, so far, in November,” Finance Secretary Carlos G. Dominguez III said in a media briefing after their meeting.
Dubai crude price — Asia’s benchmark — had breached $80/bbl between Sept. 26 and Oct. 17, save for Oct. 15 and 16 which saw prices sink below that trigger, range from $61.05-78.40/bbl on Oct. 18-Nov. 23, and drop to $59.20/bbl, $59.10/bbl and $60.2/bbl on Nov. 26, 27 and 28, respectively.
Mr. Dominguez added that Dubai futures market prices are below $60/bbl in 2019, “indicating a downward trend in world oil prices.”
“Together with other measures to increase food supply in the country — particularly rice — the suspension of the second tranche of excise taxes on petroleum was intended to curb inflationary pressure and relieve the Filipino people of the high prices of goods. With month-on-month inflation moderating due to supply-side reforms initiated by the government, coupled with falling petroleum prices in the world market, the DBCC deems the suspension unnecessary,” said Mr. Dominguez, noting that looming shift from rice import restrictions to a regular tariff scheme will contribute to bringing down inflation next year — by up to 0.85 percentage point according to latest official estimates.
Malacañang announced in mid-October that it will suspend the P2 per liter fuel excise tax, acting upon the economic managers’ recommendations when Dubai crude oil spot and futures prices were above $80 per barrel.
Economic managers earlier said that their move was meant to rein in inflation expectations at a time that inflation spiked to a nine-year-high 6.7% in September and October. Inflation averaged 5.1% in the 10 months to October, breaching the central bank’s 2-4% full-year target for 2018.
Latest DBCC projections distributed to reporters show that local pump prices are now expected to go down even if the fuel excise tax is implemented, with diesel — used by public utility vehicles — projected to settle at P34 per liter in January 2019 from P40.45 in the same month this year and P38.80 currently. Moreover, the price of gasoline is seen to reach P44 per liter in January 2019 from P51.81 at the start of this year and P47.14 currently.
“Circumstances have changed drastically. If we ignore this change, we will not be acting as what we have promised, and basically that is to act on facts and to make decisions rationally, based on the prevailing information available,” said Mr. Dominguez.
“We are doing the President a disservice if we do not discuss these facts and developments,” he added.
“Our recommendation to continue the scheduled increase of excise taxes on petroleum products will be discussed in the Cabinet meeting on Tuesday, Dec. 4, and will be subject to the approval of President Rodrigo R. Duterte.”
At the same time, Mr. Dominguez said “the DBCC will also keep an eye on the trends of the world oil market,” as well as the Dec. 6 regular meeting of the Organization of Petroleum Exporting Countries (OPEC). Reuters reported on Wednesday that world crude prices’ drop since October has been on a par with the 2008 price crash and steeper than that of 2014-2015, both of which prompted OPEC to agree output curbs to support the market. Reuters cited OPEC sources as saying that producers are now considering a supply cut of at least 1-1.4 million barrels per day to support prices.
The DBCC also revised its assumptions for Dubai crude oil prices to $60-75/bbl in 2019, from $75-85/bbl initially programmed in its October meeting, and the $70-75/bbl programmed for this year.
Mr. Dominguez also said that the DBCC’s recommendation for the continued implementation of the fuel tax hike took into consideration projections that full-year suspension in 2019 will result in P43.4-billion foregone revenues. “The erosion in revenue will lead to a commensurate decrease in government expenditures so as not to breach the target deficit level of 3.2% of gross domestic product in 2019,” he said.
INFLATION SOON BACK ON TARGET
Sought for comment, Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla, Jr. said in a mobile phone message: “The planned suspension of the second tranche is premised on the view that oil prices will likely breach $80/barrel.”
“That view has now changed with recent developments of much lower oil prices. Excise tax hike can proceed without adverse impact on fuel pump prices previously factored in. With lower oil prices ahead overall, that’s going to further reinforce our expectation that inflation will return to target by 2019-20. This will also support attainment of the fiscal deficit target.”
BSP Deputy Governor Diwa C. Guinigundo said in a separate text that the suspension of the fuel excise hike will cut inflation by just 0.1 percentage point.
Sought separately for comment, Bienvenido S. Oplas, Jr., president of Minimal Government Thinkers, a member-institute of Economic Freedom Network Asia, said in a mobile phone message: “We have high inflation this year. We should aspire for near-zero inflation next year, stronger household consumption, higher GDP growth…”
For United Filipino Consumers and Commuters President Rodolfo B. Javellana, Jr., meanwhile, “Mataas ang presyo ng pagkain, presyo ng bilihin… Binabalewala nila ang posisyon ng presidente. Gumaganda na ang market so pag tinaggal mo ang excise, mas lalo itong mabuti… (Prices of food and other basic goods are high… state economic managers are defying the President’s stand. The market is improving, and if you suspend the excise tax hike, things should get even better…”)

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