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Inflation and the Transportation sector

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Bienvenido S. Oplas, Jr.

My Cup Of Liberty

Inflation and the Transportation sector

The Philippines registered a 4.4% inflation rate for January 2019. The good news is that it is a lot lower than the past four months’ average of 6.1%, but the bad news is that compared to our neighbors with January 2019 data, it is the highest. In the ASEAN-6, three have near-zero inflation while Indonesia and Vietnam have below 3% (see Table 1).

Since Dutertenomics has penalized domestic consumers with ever-rising inflation (1.3% in 2016, 2.9% in 2017, 5.2% in 2018), they should give us a respite, have an inflation target of 1-2% in 2019 via significant tax cuts somewhere, or suspension of any tax hikes.

The consumer price index (CPI) which is the basis for computing the inflation rate is composed of 11 items or sectors. Five items with biggest increase in 2018 are enumerated below, plus: Furnishings and household equipment and house maintenance, Clothing and footwear, Communications, Recreation and culture, Education, Restaurant and miscellaneous goods and services.

TRAIN law tax hikes in tobacco, oil, LPG have pushed high prices for those products including transportation. Notice that when world oil prices were very low in 2015-2016, the transport sector experienced deflation of -5.4% and -1.4% respectively, followed by electricity, gas and other fuels (see Table 2).

Aside from oil tax hikes, there are other factors that are largely politics and government-created, that distort prices upwards. I limit the discussion to those pending congressional action.

1. House Bill (HB) 8885 or the “Student Fare Discount Act” has been passed on 3rd reading last Monday, Feb. 4, 2019. It provides that all Filipino students from elementary to tertiary, technical, and vocational be entitled to a 20% mandatory discount for buses, jeepneys, trains, tricycles, airplanes, and boats.




To compensate for big reduction in revenues, public transportation operators will enjoy reduction or exemption from regulatory fees and charges, and can also claim the granted discount as tax deduction.

2. Eight HBs for Committee Report, regulating the transport network companies/transport network vehicle services (TNCs/TNVS), with fees and penalties for violations. A TWG meeting was held at the House on Jan. 22.

3. HB 7436, abolishing the Road Board and management of the Motor Vehicle Users Charge (MVUC), amending RA 8784, was scheduled for a bicameral meeting last Jan. 21. The road users’ tax will go to the National Treasury to be used mainly for road maintenance.

4. Five HBs for Committee Report, allowing and regulating the use of motorcycles as PUVs, amending RA 4136 (Land Transportation and Traffic Code). Meeting held last Jan. 23.

Item #1 is wrong, it is government price control and will lead to higher fares for non-students to compensate for the big discounts. DoF will likely oppose 100% the “discount as tax deduction” scheme. DoF just wants tax-tax-tax and dislikes tax deductions.

Item #2 is important but the provisions will likely result in more restrictions like franchise cap, instead of more liberalization of the modern and technology-based (not bureaucracy-based) ride-sharing scheme. Congress and LTFRB should avoid more restrictions, leading to lower supply of cars and drivers, which will lead to longer waiting periods, passenger inconvenience, and higher fares. Liberalization like higher or no franchise cap will lead to a better outcome: more cars and drivers, shorter waiting period, passenger convenience and lower, competitive fares.

Item #3 is good because it will cut another layer of bureaucracy but road maintenance can be privatized. Noted transport and infrastructure consultant Rene Santiago observed that “Myanmar is ahead of us in privatizing road maintenance. Think of five-year concession with performance metrics, instead of annual bidding (and annual opportunities for extortion).”

Item #4 is good, it will expand the choices for commuters but LTFRB accreditation should be via a corporate setup like the TNCs, not individual units and operators like jeepneys. When motorcycle drivers abuse their passengers, their company should be held accountable, which will put drastic disciplinary measures against erring partner-drivers.

The Philippine transport sector should be unburdened with more oil taxation, more bureaucratic regulations and more price controls or mandatory discounts. The purported goal of lower fares, lower inflation for the public, is almost always defeated as the actual results are higher fares, higher inflation for the public.

 

Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers.

minimalgovernment@gmail.com