CPBRD: Cash aid better than fuel subsidies

TARGETED cash assistance for poor and low-income households would be more effective and fiscally sustainable than universal fuel subsidies amid surging oil prices due to the US-Israel war on Iran, according to a policy brief by the Congressional Policy and Budget Research Department (CPBRD) of the House of Representatives.

In a report, the think tank warned that a sharp increase in global oil prices could drive up transport, fuel and food costs, with vulnerable families expected to bear the brunt of the impact. The study simulated possible oil price increases of 50%, 75% and 100%.

“The shock creates new poverty entirely among low-income households,” Kenmore B. Espinoza, who leads the Budget and Tax Research Bureau of the CPBRD, said in the report, estimating that as many as 396,067 households could fall below the poverty line depending on the severity of the oil price surge.

The CPBRD said the Philippines remains highly exposed to external shocks because nearly 98% of its oil supply is imported from the Middle East.

Under a scenario where oil prices rise by 75%, low-income households could lose the equivalent of 34% of one month’s income, while lower middle-income households could lose 34.3%, according to the study.

The think tank noted that limiting aid only to households officially classified as poor could leave many vulnerable families unprotected despite facing a high risk of slipping into poverty.

Instead, the CPBRD recommended targeted assistance covering poor and low-income households, estimated at 13.37 million households or about 48.6% of all households nationwide.

The targeted aid program would cost P61.6 billion to P123.2 billion.

By contrast, a universal assistance program could cost as much as P407.1 billion in a worst-case scenario, while also extending benefits to higher-income households that are better positioned to absorb higher fuel prices.

The CPBRD also criticized blanket measures such as suspending fuel excise taxes, saying these tend to disproportionately benefit wealthier households with higher fuel consumption and multiple vehicles.

“Whatever form the assistance takes, it must reach the low-income class,” it said. “The oil shock does not stop at the official poverty line, and the government’s response should not stop there either.” — Pexcel John Bacon