Minimum wage is only 13 to 27% of NEDA’s cost of decent living

Under fire for its Php10,000-gaffe, the National Economic and Development Authority (NEDA) is now saying, through Secretary Ernesto Pernia, that the cost of decent living for an ordinary family is Php42,000.

IMG_89E6320565AD-1

This admission by the country’s chief economist on the amount required by a Filipino household to afford a decent living has underlined the need and urgency of a substantial wage hike, including the proposed Php750-national minimum wage, which ironically Pernia and other economic managers of the Duterte administration are opposing.

Using data from the National Wages and Productivity Commission (NWPC), it appears that current wages in the country could only meet as low as 13% to just 27% of NEDA’s estimated cost of decent living.

In the National Capital Region (NCR), for instance, the daily minimum wage is just Php475 (for retail/service establishments with 15 or less workers) to Php512 (all other non-agriculture industries). These translate to a monthly income of about Php10,331.25 to Php11,136.00.

(Note: These estimates are based on the assumption that there are 261 work days a year or about 21.75 days a month. It excludes Saturdays and Sundays plus an extra day to account for a leap year. See here.)

This means that the minimum wage in NCR is equivalent to only 25% to 27% of NEDA’s estimated cost of decent living. Put another way, an ordinary household in NCR needs four minimum wage earners to afford a decent living.

The situation is much worse in regions outside NCR where the minimum wage is way lower. In the Autonomous Region in Muslim Mindanao (ARMM), for example, the minimum wage is a paltry Php270 (agriculture) to Php280 (non-agriculture) per day. Per month, the minimum wage in the region is about Php5,872.50 to Php6,090.00, which meets a meager 14% to 15% of the cost of decent living.

And worse, amid ever increasing prices and rising inflation and additional tax burden such as those under the TRAIN (Tax Reform for Acceleration and Inclusion) Law, the already meager wages of Filipino workers are further being eroded.

Meanwhile, the proposed Php750-national minimum wage is even less than 40% of NEDA’s cost of decent living. The workers are asking much less of what their families need to live decently and they are still being deprived.

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The curious case of NEDA’s Php10,000

NEDA (National Economic and Development Authority) did not say that a family of five could live decently with Php10,000 a month, according to Rappler’s “Fact-Check”. End of debate?

Actually no. While NEDA may not have directly referred to the Php10,000 as enough for decent living, the whole issue is what the amount of Php10,000 represents.

That “hypothetical” amount – the budget of an average Filipino family, said NEDA – was in fact based on the official poverty threshold fora family of five (i.e., Php9,140 as of first semester 2015, latest official data).

The PSA (Philippine Statistics Authority) defines poverty threshold this way:

“Food threshold is the minimum income required to meet basic food needs and satisfy the nutritional requirements set by the Food and Nutrition Research Institute (FNRI) to ensure that one remains economically and socially productive. Poverty threshold is a similar concept, expanded to include basic non-food needs such as clothing, housing, transportation, health, and education expenses).”

For the government, that is around Php10,000.

And there lies the problem. Using the ridiculously low poverty threshold as reference to show that the impact of high inflation and the TRAIN law on ordinary households is tolerable highlights the basic flaw of government’s appreciation of the true extent of poverty in general and of the impact soaring prices and regressive taxes in particular. #

Inflation surges for 5th straight month since TRAIN law

Inflation as of May 2018There is no end in sight for high prices under President Duterte.

Inflation rate has reached a new 5-year high this May at 4.6 percent. It has been continuously accelerating every month since the TRAIN Law took effect in January 2018.

Even Duterte’s economic managers could not say whether inflation has already peaked. This means that the public should brace for more surges in prices of basic goods and services in the months ahead.

By the second half of the year, for instance, we are looking at big-time increases in water rates in Metro Manila (earlier reports indicated a basic charge hike of Php8+ to Php12+ per cubic meter) as well as in LRT-1 fares (Php5-7) thanks to privatization. Public transport fares will likely increase too amid deregulated oil price hikes.

The poorer families obviously are the hardest hit but even middle-income households are also not spared.

Transport service Grab has been hiking their rates with impunity, taking advantage of the lack of a reliable mass transport system. Meanwhile, some 170 private schools in NCR have jacked up tuition by 5-15% this school year, which will hit monthly household budgets as most pay on installment basis.

Duterte’s economic managers assure the public that inflation will eventually taper off later in the year. What this means is that prices will continue to increase although at a slower pace than they are doing today. This assumes that global oil prices and foreign exchange rates will move favorably, which is difficult to bank on amid worsening geopolitical uncertainties.

Further, because the downstream oil industry is deregulated, government does not have the needed policy tool to ensure that the public and the economy are protected from sudden and drastic and often speculative increases in global oil prices. Not to mention that the industry remains monopolized and the prices dictated.

Oil continues to be one of the biggest drivers of high inflation in the country. According to the joint DBM-NEDA-DOF statement, oil price increases contributed 0.70 percentage points to the 4.6% May inflation. But increasing petroleum prices also pushed up food prices, with fish and seafood and bread and cereals, for instance, significantly contributing as well to the May inflation with 0.65 and 0.56 percentage points, respectively per NEDA data.

What is certain is that the impact of the additional taxes on consumer prices under the TRAIN law is permanent unless they are removed. Including the latest (June 3) oil price adjustments, the TRAIN law accounts for 29.3% of the total increase in diesel prices this year; gasoline, 32.6%; and kerosene, 34.4 percent.

Blog 08 Table OPH TRAIN

Amid all these, people do not simply complain but make concrete policy proposals that could at least provide immediate relief, such as removing the additional taxes under the TRAIN law.

But typical of the Duterte administration, we get responses ranging from the arrogant (e.g., Budget Sec. Benjamin Diokno’s crybaby remark) to the ludicrous (e.g., Finance Sec. Carlos Dominguez’s claim that the public’s supposed wasteful spending of their additional income under TRAIN is further driving prices up). #

Oil prices under Duterte

As we face another round of oil price hikes this week, here’s a look at how oil prices have skyrocketed so far under the Duterte administration. Before Duterte took over, the common price of diesel in Metro Manila was Php27.95 per liter while gasoline (RON95) was pegged at Php41.15. Today, these have jumped to Php42.85 and Php58.07 per liter, respectively. In some gas stations in Metro Manila, diesel is being retailed by up to almost Php48 per liter, and gasoline by almost Php61. Prices in other regions are even higher.

Prior to this week’s oil price adjustments, the TRAIN law accounts for 28% of the total price hikes in diesel, and 31% for gasoline. When gas stations implemented the TRAIN in mid-January this year, the common price of gasoline and diesel in Metro Manila immediately jumped by more than Php4 to almost Php6 per liter. Thus, while it is true that the TRAIN law is not the sole reason behind the recent spike in oil prices and consequently of faster inflation rate, it is certainly a major contributor.

Deregulation, which allows automatic oil price adjustments based on supposed global oil price movement and forex fluctuations, accounts for the rest. But is it true that government is helpless as its economic managers like to claim? Remember that like the TRAIN law, deregulation is a government policy. As such, it can be changed if only the Duterte administration has the political will to protect the public interest, especially the poor but also even the middle class who are reeling as well from escalating prices. Sadly, this is not the case. #

(Read more on how TRAIN law and oil deregulation are oppressing the people here – https://goo.gl/AMcgz8)

Oil firms profiteering thru excessive price hikes

From the start of the year up to May 15, the price adjustments in diesel may have been “excessive” by about Php1.03 per liter and gasoline by Php1.34 centavos per liter. This resulted in about Php53.74 million additional collections every day from diesel and gasoline products for the oil companies. Of this amount, Php6.45 million daily go to the Duterte government’s oil VAT collections (on top of its additional revenues from the TRAIN law’s oil excise taxes). 

(Photo from INQUIRER.net)

The Tax Reform for Acceleration and Inclusion (TRAIN) law is supposed to accelerate inclusive growth. But its immediate impact has been to accelerate the rate of movement of prices of basic goods and services in the country.

Since the implementation of TRAIN, the country’s inflation rate has continued to climb. Latest figures say that in April, inflation reached another five-year high at 4.5 percent. For the first quarter of the year, inflation averaged 3.8%, the fastest quarterly average since 2014.

Due to its domino effect on the costs of other basic commodities and services, the biggest driver of accelerated inflation rate it appears is oil. For one, TRAIN has significantly raised the pump prices of petroleum products. Inclusive of the 12% value added tax (VAT), the new petroleum excise taxes under TRAIN increased the pump price of gasoline by Php2.97 per liter; diesel, Php2.80; and kerosene, Php3.30 this year.

But TRAIN is just one, small part of the story behind high oil prices. For more than two decades now, oil price adjustments in the Philippines have been deregulated, thanks to the neoliberal policy impositions of the International Monetary Fund (IMF) in the 1990s.

Deregulation means that oil companies could automatically adjust prices at the pump. This year alone, there have been already 15 rounds of oil price hikes, as of mid-May. The weekly price adjustments increased the pump price of gasoline by Php5.10 per liter; diesel, Php6.15; and kerosene, Php5.85.

Table 1 summarizes the impact of the TRAIN law and the weekly oil price adjustments under deregulation on petroleum pump prices so far this year.

Tab 1 OPH 2018

These price increases in petroleum products – and the consequent direct and domino impact on inflation – are in fact even more burdensome and abusive for the public than they already are. Taking advantage of deregulation, it appears that oil companies continue their practice of implementing oil price hikes that are bigger than what the world market supposedly warrants. This allows them to pocket extra profits on top of their regular net income, as the government also reaps windfall tax revenues at the expense of consumers.

Looking at local oil price movement from the start of the year up to May 15, the price adjustments in diesel may have been “excessive” by about Php1.03 per liter and gasoline by Php1.34 centavos per liter. This resulted in about Php53.74 million additional collections every day from diesel and gasoline products for the oil companies. Of this amount, Php6.45 million daily go to the Duterte government’s oil VAT collections (on top of its additional revenues from the TRAIN law’s oil excise taxes).

The Department of Energy (DOE) and the oil companies explain that domestic price adjustments merely reflect the movement in global oil prices plus the fluctuations in the foreign exchange (forex). For the Philippines, the international benchmark for refined petroleum products is the Mean of Platts Singapore (MOPS).

But based on the weekly MOPS adjustments and forex fluctuations as posted in the DOE website, the total price adjustments in diesel for the year should have only been around Php4.12 per liter (as of May 15, excluding the week of March 26-30 which the DOE did not post MOPS and forex data on) while the actual net price hike reached Php5.15 during the same period (excluding the weekly adjustment after the March 26-30 period to allow comparison). The same thing is true for gasoline which posted a net increase of Php4.20 per liter when the total adjustments should have only been about Php2.86 per liter.

The process of estimating the price adjustment is pretty straightforward. Oil companies claim that price adjustments for the present week is determined by MOPS price adjustments (expressed in US dollars per barrel) and the average forex in the past week. For instance, if last week the MOPS diesel increased by US$2 per barrel with the forex pegged at Php50 per dollar, how much should the price hike be in local diesel prices for the current week?

Step 1 is to convert the MOPS price adjustment into peso per barrel. So, US$2 x Php50 = Php100 per barrel.

Step 2 is to convert the MOPS price adjustment into pesos per liter. One barrel has 158.99 liters. So, Php100 / 158.99 = Php0.63 per liter.

Step 3 is to include the 12% VAT to get the final estimated adjustment. So, Php0.63 x 1.12 = Php0.70 per liter.

Thus, a US$2-per barrel increase in MOPS diesel at Php50 forex rate in the previous week translates to a 70-centavo price hike in the domestic price of diesel in the current week. Anything above 70 centavos is supposedly unjustified or excessive, based on this price adjustment model.

It is important to stress that determining whether price adjustments are justified or not based on the MOPS and forex movements does not in any way represent the true extent of how much prices are artificially bloated due to the monopoly control of big oil companies in the global and local markets. It just illustrates how deregulation can be easily abused by the oil firms operating in the country through implementing adjustments that are beyond the supposedly justified amounts by so-called international benchmarks such as the MOPS.

With the Philippines being one of the world’s most oil intensive economies, even the several centavos that oil companies overcharge through questionable price adjustments already translate to massive extra profits for the oil industry.

Using 2017 domestic consumption data from the DOE, oil firms are earning (excluding the VAT, which goes to the government) an estimated Php27.23 million daily in extra profits from diesel and Php20.06 million daily from gasoline. These are derived at by multiplying the Php1.03 per liter in estimated excess price adjustment in diesel by the diesel consumption of about 29.94 million liters daily; and the Php1.34 per liter in estimated excess price adjustment in gasoline by the gasoline consumption of around 17.03 million liters daily.

Based on 2017 market share (per DOE report), the Big Three which continues to dominate the local market after more than two decades of deregulation, cornered 55% of the estimated daily extra profits of the oil firms – Petron, Php13.05 million a day; Shell Php9.46 million; and Chevron Php3.31 million.

Table 2 summarizes the estimated extra earnings of the oil companies and the government from excessive price hikes in diesel and gasoline.

Tab 2 Extra income OPH

Again, these guesstimates merely scratch the surface by comparing local and international price changes. In reality, with or without price adjustments, big oil companies that run and control the global oil industry – from the vast oil fields in the Middle East all the way to the thousands of gas stations nationwide, and all the technology and infrastructure that keep this massive network together – retail petroleum at prices many times their actual production costs.

To illustrate, the Philippines imports 79% of its crude oil from just three countries – Saudi Arabia, 35%; UAE, 28%; and Kuwait, 16% (as of first half 2017, according to the DOE). The production costs of crude oil in these countries, based on 2015 data (as cited by CNN Money), are just US$9.90 per barrel for Saudi Arabia; US$12.30 for UAE; and US$8.50 for Kuwait.

Yet, in 2015, Philippine domestic prices were based on the posted price of around US$51.23 per barrel (2015 average posted price of Dubai crude, based on International Monetary Fund or IMF monitoring). This means that oil firms in the Philippines pegged pump prices at crude oil prices that are about four to six times of the actual production costs.

Under deregulation, the government has abandoned its responsibility to determine if domestic oil prices – whether in terms of price adjustments based on global prices or more importantly, in terms of reasonable prices based on production costs – are justified or not. The public’s burden is aggravated more by price speculation in the global oil market that further artificially drives up local prices which consumers fully bear because of deregulation. #

(First published by Bulatlat.com, this article is an updated version of an earlier blog post.)

Oil firms, government earn almost PHP10 M daily extra income from unjustified price hikes

These guesstimates merely scratch the surface by comparing local and international price changes. In reality, with or without price adjustments, big oil companies that run and control the global oil industry retail petroleum at prices many times their actual production costs.

(Photo from Inquirer.net)

Taking advantage of deregulation, it appears that oil companies continue their abusive practice of implementing oil price hikes that are bigger than what the world market supposedly warrants. This allows them to pocket extra profits on top of their regular net income, as the government also reaps windfall tax revenues at the expense of consumers.

Looking at local oil price movement from the start of the year up to the third week of March, the price adjustments in diesel may have been overpriced by 24 centavos per liter and gasoline by 15 centavos per liter. This resulted in about PHP9.67 million additional collections every day from diesel and gasoline products for the oil companies. Of this amount, PHP1.16 million daily go to the Duterte government’s value-added tax (VAT) collections. (Note that the administration has also been collecting additional excise taxes from oil products this year under the Tax Reform for Acceleration and Inclusion or TRAIN law.)

The Department of Energy (DOE) and the oil companies explain that domestic price adjustments merely reflect the movement in global oil prices plus the fluctuations in the foreign exchange (forex). For the Philippines, the international benchmark for refined petroleum products is the Mean of Platts Singapore (MOPS). Since the country’s oil industry was deregulated more than two decades ago, these adjustments have been automatic.

But based on the weekly MOPS adjustments and forex fluctuations as posted in the DOE website, the price adjustment in diesel for the year should have only been around PHP1.31 per liter (as of March 20) while the actual net price hike reached PHP1.55 during the period. The same thing is true for gasoline which posted a net increase of PHP1.05 per liter when the adjustment should have only been about 90 centavos per liter.

The process of estimating the price adjustment is pretty straightforward. Oil companies claim that price adjustments for the present week is determined by MOPS price adjustments (expressed in US dollars per barrel) and the average forex in the past week. For instance, if last week the MOPS diesel increased by US$2 per barrel with the forex pegged at PHP50 per dollar, how much should the price hike be in local diesel prices for the current week?

Step 1 is to convert the MOPS price adjustment into PHP per barrel. So, US$2 x PHP50 = PHP100 per barrel.

Step 2 is to convert the MOPS price adjustment into PHP per liter. One barrel has 158.99 liters. So, PHP100 / 158.99 = PHP0.63 per liter.

Step 3 is to include the 12% VAT to get the final estimated adjustment. So, PHP0.63 x 1.12 = PHP0.70 per liter.

Thus, a US$2-per barrel increase in MOPS diesel at PHP50 forex rate in the previous week translates to a 70-centavo price hike in the domestic price of diesel in the current week. Anything above 70 centavos is “overpricing”.

It is important to stress that the “overpricing” based on the MOPS and forex movements does not in any way represent the true extent of how much prices are artificially bloated due to the monopoly control of big oil companies in the global and local markets. It just illustrates how deregulation can be easily abused by the oil firms operating in the country through implementing adjustments that are beyond the supposedly “justified” amounts by so-called international benchmarks such as the MOPS.

With the Philippines being one of the world’s most oil intensive economies, even the several centavos that oil companies overcharge through questionable price adjustments already translate to massive extra profits for the oil industry.

Using domestic consumption data as of the first half of 2017 from the DOE, oil firms are earning (excluding the VAT, which goes to the government) an estimated PHP6.25 million daily in extra profits from diesel and PHP2.26 million daily from gasoline. These are derived at by multiplying the 24-centavo estimated overpricing in diesel by the diesel consumption of about 29.34 million liters daily; and the 15-centavo estimated overpricing in gasoline by the gasoline consumption of around 16.66 million liters daily.

Based on market share (as of first half 2017, based on DOE report), the Big Three which continues to dominate the local market after more than two decades of deregulation, cornered 56% of the estimated daily extra profits of the oil firms – Petron, PHP2.43 million daily; Shell PHP1.76 million; and Chevron PHP0.56 million.

Again, these guesstimates merely scratch the surface by comparing local and international price changes. In reality, with or without price adjustments, big oil companies that run and control the global oil industry – from the vast oil fields in the Middle East all the way to your neighborhood gas stations, and all the technology and infrastructure that keep this massive network together – retail petroleum at prices many times their actual production costs.

To illustrate, the Philippines imports 79% of its crude oil from just three countries – Saudi Arabia, 35%; UAE, 28%; and Kuwait, 16% (as of first half 2017, according to the DOE). The production costs of crude oil in these countries, based on 2015 data (as cited by CNN Money), are just US$9.90 per barrel for Saudi Arabia; US$12.30 for UAE; and US$8.50 for Kuwait.

Yet, in 2015, Philippine domestic prices were based on the posted price of around US$51.23 per barrel (2015 average posted price of Dubai crude, based on International Monetary Fund or IMF monitoring). This means that oil firms in the Philippines pegged pump prices at crude oil prices that are about four to six times the actual production costs.

Under deregulation, the government has abandoned its responsibility to determine if domestic oil prices – whether in terms of price adjustments based on global prices or more importantly, in terms of reasonable prices based on production costs – are justified or not. The public’s burden is aggravated more by price speculation in the global oil market that further artificially drives up local prices which consumers fully bear because of deregulation. #

 

Selling out PH sovereignty and patrimony for conditional Chinese money

In exchange for conditional loans that benefit Chinese banks and corporations, the Duterte administration is weakening, if not practically giving up, the country’s claim on 381,000 square kilometers of maritime space as well as vast fishery, oil and gas, and mineral resources.

(Image from CNN Philippines)

Even more alarming than the reported nearly done construction of Chinese military facilities in Philippine-claimed reefs in the South China Sea is the dismissive response of Malacañang. Presidential spokesperson Harry Roque did not just downplay the gravity and implications of what China is doing in the disputed seas. His statement indicates that the policy of the Duterte administration on the territorial conflict with China is to feign helplessness and in effect legitimize China’s violation of Philippine sovereignty and patrimony.

No one is asking the President to declare a war against China. It is also true that the Chinese construction in the reefs started long before Pres. Duterte came into power. But what government should have been doing at the minimum is constantly protest China’s continued militarization of the disputed territories. What it should have been doing is use the favorable ruling by the United Nations (UN) Arbitral Tribunal to strengthen the country’s claim and gather further international support and recognition on Philippine sovereignty over the reefs. But instead of shoring up the country’s assertion of sovereignty through sustained diplomatic actions, Duterte has substantially weakened the Philippine position by kowtowing to China.

Malacañang sells to the Filipino people China’s supposed promise not to reclaim new islands or shoals. However, with its military facilities already entrenched in the disputed areas, China may no longer need additional reclamation, at least in the short term. Or should such need arises, it can easily expand and reclaim new areas precisely because it already has fortified its position. Chinese experts have already said that land reclamation in the South China Sea will continue to expand although they claim that construction would be for civilian and not military purposes. While it is uncertain that China would even honor its promise of not expanding its reclamation, it is certain that taking back from China the territories it grabbed from the Philippines is much more difficult now with its military infrastructure in the disputed areas already in place.

In exchange for a much softer stance on the territorial dispute, Pres. Duterte has actively sought Chinese patronage for his administration’s programs, especially the ambitious “Build, Build, Build” infrastructure program. These include aid, concessional financing and investment pledges that the Department of Finance (DOF) has described as unprecedented and comprise the initial dividend from the President’s supposed foreign-policy rebalancing. So far, these commitments total an estimated US$ 7.34 billion (about Php367 billion @ US$1:Php50) in soft loans and grants, according to the DOF’s International Finance Group (IFG). The amount covers the implementation of 10 big-ticket infrastructure projects as well as the construction of two bridges in Metro Manila and two drug rehabilitation facilities in Mindanao, and aid to rehabilitate Marawi City.

The National Economic and Development Authority (NEDA) has earlier identified Chinese official development assistance (ODA) to bankroll at least three flagship projects of the Duterte administration — the Philippine National Railways (PNR) Long Haul from Calamba to Bicol (Php151 billion); the Kaliwa Dam (Php10.86 billion); and Chico River Pump Irrigation (Php2.70 billion). But note that these are not gifts with no strings attached. (See Table below)

ODA flagship projects under Duterte Jun 2017

These are loans that must be repaid with interests and are also tied to the provision of contracts to Chinese firms and suppliers. Meanwhile, in exchange for these conditional loans that benefit Chinese banks, corporations (and probably even workforce), the Duterte administration is weakening, if not practically giving up, the country’s claim on 381,000 square kilometers of maritime space as well as vast fishery, oil and gas, and mineral resources.

It is not only in South China Sea that the administration is allowing China to take over the country’s patrimony. Perhaps encouraged by the “peace and stability” that Pres. Duterte’s Martial Law declaration promises and by greater economic opportunities through Charter change (Cha-cha) that lifts restrictions on foreign capital, China is among the leading foreign investors that eye thousands of hectares of land in Mindanao for plantation operations and multibillion transport infrastructure projects to facilitate its exploitation of the region’s wealth. The Duterte administration also let China conduct maritime research in Benham Rise and basically allowed it to make a map of the maritime resources in the country’s eastern seaboard.

But for the President’s spokesperson, such total sellout of Philippine sovereignty and  patrimony is not news. #

More articles on China and Pres. Duterte —

“What’s in it for China in Duterte’s ‘Build, Build, Build’?”

“Business interests with ties to Duterte to benefit from Martial Law extension”