Fiscal issues, SONA 2011

SONA 2011: Making sense of Aquino’s facts and figures (part 2)

Aquino missed in his SONA the facts and figures that matter to the people (Photo from pinoypower.net)

Continued from part 1

Aquino also claimed that in his first year as President, the Philippines got upgraded four times by credit rating agencies. Compare this, said Aquino, to the lone credit upgrade and six downgrades the country had in the nine and a half years of the Arroyo administration. A high credit rating means lower interest payments. According to Aquino, the country spent P23 billion less in interest payments from January to April 2011 compared to the same period last year. This amount can supposedly already cover the 2.3 million families in target beneficiaries of the CCT program until the end of the year.

Debt servicing

A credit rating is simply the measure of the credit worthiness of government. Credit worthiness, meanwhile, pertains to the ability of government to repay its debt obligations. A high or favorable credit rating indicates that there is less or no risk of defaulting on our loans. Thus, creditors are more willing to lend with lower interest rates and therefore “less” debt burden for the borrower.

But the credit rating upgrades came at a high cost for the people. To obtain the upgrades, the Aquino administration ensured that debt obligations are being paid dutifully and at the same time resorted to massive under-spending. The result is that an ever increasing portion of spending by the national government went to debt servicing. Since Aquino became President, total debt servicing has already reached P668.65 billion (from July 2010 to May 2011). Until April this year, 49.3 percent of what the Aquino administration has spent went to debt servicing.

Worse than Arroyo

Compare these figures to those under Arroyo, who has been criticized as a heavy borrower and payer. Monthly debt servicing during the Arroyo administration was P48.18 billion while in the first 11 months of the Aquino presidency, it went up to P60.79 billion.  As a percentage of total government spending (including principal payments), the average during the Arroyo administration was 41.5 percent while under Aquino, it has increased to 49.3 percent (until April 2011). (See Table)

Despite the bigger debt servicing, the total outstanding debt of government (including contingent debt) still rose from P5.19 trillion in June 2010 to P5.23 trillion as of April 2011. The P40-billion rise in government debt includes $400 million (about P18 billion) in loans from the Asian Development Bank (ADB) approved last September 2010 to help bankroll the expanded CCT program. This means that the P23 billion mentioned by Aquino as savings from lower interest payments will just be used to pay for the rising debt obligations of government, including those incurred for the CCT.

Fiscal deficit

The credit rating upgrades were also achieved due to the improvement in the national budget deficit, another indicator closely watched to determine a country’s creditworthiness. From an all-time high (in absolute terms) of P314.5 billion in deficit in 2010, the Aquino administration has been able to substantially reduce the shortfall so far this year. From January to May 2011, the fiscal deficit was pegged at just P9.54 billion or 94.1 percent below the deficit during the same period in 2010. It is also way below the programmed deficit of P152.13 billion for the first half of the year.

This lower deficit was made possible by higher revenues and lower spending during the period. As compared to the first five months of 2010, revenues are higher by P81.5 billion while spending is down by P71.08 billion. Furthermore, monthly collections are more than P1.89 billion higher than expected while monthly expenditures are almost P21.55 billion lower than programmed.

At the people’s expense

But the improved fiscal situation was achieved at the expense of the people who are being deprived of social services as government under-spent and much of what it spent went to debt servicing. At the same time, the people are being squeezed dry with burdensome taxes to raise revenues.

To keep credit rating agencies and creditors impressed, Aquino rejected the growing public clamor to scrap or at least suspend the 12 percent value-added tax (VAT) on oil amid soaring pump prices. According to Aquino, “suspending the VAT might trigger a credit downgrade because credit rating agencies would likely deem such a move as ‘fiscally imprudent’.”

The oil VAT has become one of the most important sources of revenues for government since Arroyo introduced it in 2005. But it is also the most oppressive. Revenues from the oil VAT rise dramatically as prices of petroleum products increase. Due to higher oil prices this year, for instance, the Department of Finance (DOF) expects government to earn an additional P18 billion in revenues. From an original forecast of P52 billion in oil VAT earnings based on a global crude price of $80 per barrel, the DOF revised its projection to P70 billion based on $110 per barrel.

High pump prices made a significant contribution to higher tax collections this year. In the first two months of 2011, oil VAT revenues increased by P1.2 billion because of the oil price hikes. Aside from the 12 percent VAT, gasoline products are also charged with excise tax, which generated P4.03 billion for government from January to May this year – P389 million higher than during the same period in 2010.

Facts & figures that matter

Meanwhile, facts and figures that truly matter to the people have been ignored in Aquino’s SONA – P125 or the amount of legislated minimum wage hike workers have long been demanding to help them cope with ever rising cost of living; 6,453 hectares or the size of Hacienda Luisita lands that should have long been owned and controlled by farmers and farm workers; 556,526 or the number of families living in informal settlements in Metro Manila and face the threat of forced eviction; 27 or the number of times that diesel prices have gone up since Aquino became President; and 48 or the number of victims of extrajudicial killings in his first year as Chief Executive, among others.

By using numbers, the President hoped to be objective in presenting his administration’s supposed achievements during the SONA. But he ended up ignorant of the numbers that truly matter. (End)

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Oil deregulation

Fuel stockpile plan boosts oil regulation argument

The Aquino administration faces growing peoples protests against the Oil Deregulation Law and the 12% oil VAT as fuel prices continue to escalate

On Tuesday (Apr. 19), Shell implemented another round of oil price hikes that increased the pump price of gasoline by 60 centavos per liter and diesel by 25 centavos. The kalbaryo (suffering) of the people does not seem to end. Starting Wednesday (Apr. 20), households should expect to pay P11 more for an 11-kilogram LPG tank, according to the LPG Marketers’ Association (LPGMA).

Meanwhile, reeling from growing criticisms that his administration is not doing enough to address the issue of high and escalating oil prices, President Benigno S. Aquino III announced last week the government’s plan to stockpile fuel. Aquino ordered the Philippine National Oil Co. – Exploration Corp. (PNOC-EC) to build up a strategic diesel reserve with the first shipment of 50 million liters expected to arrive next month.

To be sure, stockpiling still does not address the more urgent problem of unabated oil price hikes and exorbitant pump prices. But it does provide a glimpse of the possibilities that a fully regulated oil industry can give to the consumers and the economy. The PNOC-EC, for instance, expects to get a discount from the estimated P2.1-billion cost of its first shipment since it is buying in bulk. This will allow the government to sell its diesel at a lower price than the prevailing pump price being offered by the oil companies. The discount can be as much as P3 a liter based on PNOC-EC’s reckoning.

Imagine if the PNOC-EC is the exclusive importer of oil under a system of centralized procurement. The oil companies will have to buy from the government and they have to sell it a price based on the PNOC-EC’s cost of importation, which is cheaper. The government can also further bring down the cost of importation by exploring bilateral agreements with oil exporting governments such as engaging in commodity swaps or using the local currency to pay for oil imports thus eliminating the impact of foreign exchange fluctuations on the pump price. In addition, the government can easily determine if the oil firms are profiteering or selling at a price that is outrageously higher than the cost of buying from the PNOC-EC.

Unfortunately, this policy option is not available at present because of Republic Act (RA) 8479 or the Oil Deregulation Law. The PNOC-EC clarified that it does not intend to compete with the oil companies. The strategic oil reserve, according to the President, will only be utilized “in times of extraordinary need”. But for a backward country where wages are depressed and unemployment and poverty are chronic, for a country that is too dependent on a global oil market where monopoly and speculative pricing reign, the times of extraordinary need are ever-present. Petroleum is too strategic a commodity to be entrusted in the hands of profit-hungry oil companies.

What will replace RA 8479? We have long been pushing for a piece of legislation that will regulate the downstream oil industry in the Philippines. At the current Congress, that is House Bill (HB) 4355 filed by Bayan Muna and other progressive partylist groups. In 2005, independent think tank IBON Foundation also released a policy paper detailing how a regulated oil industry can be implemented. We do have concrete and doable proposals to bring down the cost of oil and ensure the country’s energy security.

More on the Pantawid Pasada

While fuel costs continue to escalate, the Department of Energy (DOE) is scrambling to implement President Aquino’s Executive Order (EO) 32 or the much publicized P450-million Pantawid Pasada program, hoping to mitigate the impact of the oil price hikes. I have talked to Director Zenaida Monsada of the DOE’s Oil Industry Management Bureau (OIMB) last week. She admitted that implementing the Pantawid Pasada has been a very difficult task. They have to verify that each of the 214,596 jeepney units is first, registered at the Land Transportation Office (LTO) and second, has a valid franchise from the Land Transportation Franchising and Regulatory Board (LTFRB). As for the tricycle units, the verification of almost one million Pantawid Pasada beneficiaries has been delegated to the Department of Interior and Local Government (DILG).

Once the complicated process of identifying the units qualified for the program, the next tricky job for the DOE is ensuring that the smart cards will actually be given to the drivers. I asked Monsada how they plan to do this considering that they identified the beneficiaries based on the franchisee or operator. Monsada said that the operators have to claim the cards with their drivers. But the franchise holder can bring any one with a driver’s license, I said. Monsada replied that they will coordinate with the transport groups to ensure that the drivers will get their smart cards. What will happen to the smart cards after the actual distribution to the drivers is uncertain because the DOE has no mechanism to monitor. But certainly, the effective control will be in the hands of the franchise holders since that’s how the Pantawid Pasada has been designed.

In a previous post, I argued that even as a form of economic relief, the Pantawid Pasada is grossly insufficient. With the recent round of increases in pump prices, the already scant amount that jeepney and tricycle drivers will get from the Pantawid Pasada by next month has been eroded again. Since the fuel subsidy program was announced by Malacañang last March 31, the pump price of diesel has already jumped by P1.75 per liter and gasoline, by P2.35. The P35 per day in diesel subsidy that jeepney drivers will get under the Pantawid Pasada has already been eaten up by the huge P52.50-increase in their daily fuel cost (based on their average daily consumption of 30 liters of diesel) in the past three weeks. Similarly, tricycle drivers saw their daily fuel cost jump by P9.40 a liter (based on their average daily consumption of 4 liters of gasoline), or almost double the P5-subsidy that they will get from the government. There is one more week before the targeted May 2 distribution of the Pantawid Pasada smart cards and the public transport sector may have to endure another round of oil price hikes before they can avail of Aquino’s fuel subsidy.

What is the better and more effective form of relief from the spate of oil price hikes? In terms of amount of price reduction and scope of beneficiaries, not to mention how very easily it can be implemented, the cancellation of the 12 percent value-added tax (VAT) on oil is the only relief that can really make a difference. (Read more here and here)

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Oil deregulation

Noynoy’s fuel subsidy: Why the Pantawid Pasada is not enough even as pantawid

As a program for immediate relief from the impact of high oil prices, the Pantawid Pasada is not even enough (Photo from http://www.metropolitanmanila.com)

(This article was first published by the Philippine Online Chronicles)

Updates: Malacañang announced that starting April 11, jeepney and tricycle drivers can avail of the fuel subsidy smart cards. (Read here) However, it later clarified that what authorities have started is the processing of the applications for the smart cards and not the actual distribution which will start, as earlier announced, on May 1 or 2. (Read here) Meanwhile, the price of gasoline and diesel has gone up again by P1.50 per liter (Read here), increasing the daily fuel cost of jeepney drivers by P45 and thus wiping out the P35 daily fuel subsidy even before it can be implemented.

On the heels of the first major protest on the issue of skyrocketing oil prices under the Aquino administration, Malacañang announced that the President has approved a P500-million fuel subsidy. According to President Benigno S. Aquino III, the money will come from “savings of government due to increased revenues” and will subsidize a portion of fuel consumed by public utility vehicles (PUVs) except buses. The amount was reduced to P450 million when the official directive was finally released through Executive Order (EO) 32 one week since its approval was announced by the Chief Executive.

The government first announced that it is drafting such a proposal four days before the transport caravan and protest called by people’s organizations last March 31. The initial disclosure was made by Secretary Ricky Carandang of the Presidential Communications Development and Strategic Planning Office in an obvious attempt to dull public support to the protest, which also included transport strikes in various parts of the country. Apparently maximizing the PR value it can squeeze from the fuel subsidy, the Department of Energy (DOE) said that the smart cards containing the assistance will be given to the drivers on Labor Day, May 1.

But Aquino’s response to the people’s protest is a futile effort to calm the restive public over the weekly oil price hikes. First, it does not answer the basic issue of unreasonable increases in pump prices allowed by the Oil Deregulation Law and made even more oppressive by the government’s continued collection of the 12 percent value-added tax (VAT) on petroleum and the oil firms’ unabated profiteering. Compared to what the Aquino administration is earning from the oil VAT and to the profits being squeezed by the oil companies from motorists and consumers, the P450 million to subsidize public transport are crumbs, to say the least.

Second, as a program for immediate relief from the impact of high oil prices, the fuel subsidy is not even enough. It covers only a certain portion of the population (jeepney and tricycle drivers) and excluded other vulnerable (and bigger) sectors that are also reeling from the impact of escalating fuel prices like the small fishers and farmers who use gasoline in their production, the poor households that use LPG and kerosene, etc . Moreover, EO 32’s limited coverage is further hampered by the very measly amount that each jeepney and tricycle driver will get for a limited duration, an amount that will even be eroded in the coming weeks as oil prices continue to climb.

Limited coverage

EO 32 established the Public Transport Assistance Program (PTAP) or the so-called “Pantawid Pasada” to provide targeted relief to the jeepney and tricycle drivers in the form of partial subsidy to their fuel consumption.  The PTAP, for Malacañang, is “the most equitable and efficient form of intervention” to protect the vulnerable sectors. Smart cards will be issued to qualified beneficiaries to ensure the “integrity of the disbursements” that shall be funded by the Special Account in the General Fund (SAGF) of the Department of Energy (DOE). The SAGF includes proceeds from the Malampaya oil field in Palawan.

While the Inter-Agency Energy Contingency Committee (IECC), a body formed by Aquino last month to prepare precautionary measures amid the rising tension in the oil-rich Middle East and North Africa region, recognized that the “public transport sector has been the hardest hit by the oil price hikes” since oil is one of its major operating costs, EO 32 does not cover the entire public transport sector. Energy Secretary Jose Rene D. Almendras has earlier said that buses were excluded from the fuel subsidy because they have already been granted a provisional fare hike of P1.

Beneficiaries, in the case of jeepney drivers, shall be identified by the Land Transportation and Franchising Regulatory Board (LTFRB) on a per franchisee basis and on the number of franchised units. This means that jeepney drivers and operators must first prove that their units are covered by a legitimate franchise to qualify for the fuel subsidy. This requirement will unduly prolong and complicate the process of accessing the subsidy and in the end may only discourage the drivers from availing of the assistance. It will also exclude a significant portion of drivers that are not covered by a valid jeepney franchise. According to the DOE, there are 214,596 jeepney units with valid franchises nationwide that will be covered by the Pantawid Pasada. However, estimates say that there are more than 230,000 jeepney units nationwide, which means that around 15,000 units are not covered by a franchise.

Such requirement misses the point in providing immediate economic relief. It’s like saying that only documented overseas Filipino workers (OFWs) will be evacuated by the government from Libya and illegal migrants should fend for themselves amid the crisis. Providing economic relief for all drivers is not promoting or tolerating so-called “colorum” (without franchise) jeepneys. That is the job of transportation officials to implement. But it’s a different matter if the government will use an economic relief program to punish colorum jeepneys and their drivers.  All jeepney drivers and their families are hard hit by oil price hikes whether they have a valid franchise or not.

For tricycle drivers, the Department of Interior and Local Government (DILG) and the local government units (LGUs) will coordinate to identify beneficiaries, according to EO 32. It is unclear how the fuel subsidy will be provided to almost 1 million tricycle units nationwide.

Measly amount

Meanwhile, the EO did not say how much the subsidy will be. Earlier reports quoted Almendras as saying that each smart card will have a value of P1,500 while other reports said that the subsidy was P2 or 3 a liter. When the amount was finalized, it turned out that each jeepney unit covered by a legitimate franchise will get only P1,050 per month or P35 per day, an amount that is not even enough to buy a liter of diesel. A jeepney unit usually consumes 30 liters in one day. Given the common price of diesel of P47.10 per liter in Metro Manila as monitored by the DOE, the fuel subsidy constitutes a measly 2.5 percent of the daily cost of diesel being shouldered by a jeepney driver.

Tricycle drivers, on the other hand, will receive P150 per month, or P5 per day.  The subsidy could go up if the LGUs can raise counterpart funds, Almendras said. This discriminates against tricycle drivers who are under poorer LGUs that could not raise resources. Like in the case of jeepney drivers, the P5 per day-assistance is also a very small amount relative to what tricycle drivers spend on gasoline which is around P54.85 a liter in Metro Manila (common price). Considering that they use 4 liters a day on the average, the Pantawid Pasada for tricycle drivers is thus equivalent to just 2.3 percent of their daily fuel cost.

The already insignificant fuel subsidy is actually even much smaller because it is allocated on a per unit basis and not per driver. In many cases, one jeepney or tricycle unit has two or even three drivers who take turns during the week. Thus, in effect, two to three drivers will share the P1,050 or P150 monthly fuel subsidy that will be provided by the Aquino government.

In addition, by the time that the fuel subsidy becomes available on May 1, oil prices have already climbed higher thereby further eroding whatever impact the Pantawid Pasada has on the cost of fuel.  On the average, the pump price of diesel has been increasing by 61 centavos per liter every week this year and gasoline by more than 45 centavos. If this trend continues, the price of diesel would have already gone up by almost P2 a liter and gasoline by almost P1.50 by the time jeepney and tricycle drivers get their Pantawid Pasada smart cards on Labor Day.

And by the way, because of the value added tax (VAT) imposed on petroleum products, 12 percent of the Pantawid Pasada will actually return to the government.

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Oil deregulation

Overpricing amid speculative oil price spikes, not supply, is more urgent concern

(This article was first published by the Philippine Online Chronicles)

On Tuesday (Mar. 8), oil firms implemented the eighth round of oil price hikes this year and the third round in one week. All in all, the pump price of diesel has already increased by P6.75 per liter since January; kerosene, P6.50; and gasoline, P6. The retail price of liquefied petroleum gas (LPG), on the other hand, posted a net decrease of P1.90 per kilogram (kg). But recent trends show an uptrend in the LPG international contract price, consequently hiking the local retail price by P2.50 per kg since March 1. (See Table 1)

Alarming pace

The pace with which pump prices are increasing is very alarming. This year, the price of diesel at the pump is rising by almost 68 centavos a liter per week and those of gasoline and kerosene by 65 centavos and 60 centavos, respectively. Just to give you an idea how bad the situation is, note that during the 2008 oil price crisis, the retail price rose by just 57 centavos a liter per week. This, of course, is just an average. At its peak (June and July), the 2008 crisis jacked up local pump prices by P1.42 a liter per week. Unfortunately, we all have no idea if the current surge in prices has already peaked or at least nearing the summit. As we speak, tension continues to build up in the Middle East, with protests now spreading to Saudi Arabia. Meanwhile, the US is planning to intervene militarily in the Libyan civil war. These fuel more speculations, driving wild spikes in prices like in 2008. But unlike in 2008, the oil rich regions are today embroiled in serious volatility that may actually disrupt supply which means more bad news for importing countries like ours.

No shortage

Certainly, there is no actual shortage yet with most members of the Organization of Petroleum Exporting Countries (OPEC) pumping more oil than their individual quotas even before the unrest in Libya. The spare capacity of OPEC is pegged by the International Energy Agency (IEA) at 4.9 million barrels a day or about three times Libya’s output. Spare capacity means capacity levels that can be achieved in 30 days and sustained for 90 days. Oil inventories of the world’s largest economies under the Organization for Economic Cooperation and Development (OECD) also exceed the normal 52-54 days with 57.5 days in December. Nevertheless, taking early measures to prepare for a possible supply disruption is a prudent decision on the part of President Aquino who created an Inter-Agency Contingency Committee (IACC). The Department of Energy (DOE) has also imposed a minimum inventory of 30 days for refiners and 15 days for importers of finished products.

Real problem

However, the real problem right now is not supply but the skyrocketing costs of oil and its impact on the people, especially the poor. Although much of the increases in the global oil prices are speculative (there is no actual shortage, only fears of shortage), Filipino consumers bear the full brunt of soaring prices because of the Oil Deregulation Law or Republic Act (RA) 8479. Worse, oil companies have been taking advantage of the deregulated downstream oil industry to overprice their products. In a deregulated environment, oil firms simply “text” someone in the DOE that they are increasing prices, as a matter of FYI. This system obviously creates a lot of room for abuses. To illustrate, from 2008 to January this year, oil firms have implemented price hikes that were bigger than what changes in global prices and foreign exchange warrant. Similarly, they also implemented smaller rollbacks. The net result is an overpricing of around P7.50 per liter.

P7.50 per liter in overpricing

Thus, on top of the speculative increases, consumers also shoulder the cost of overpriced oil which is an enormous burden for ordinary folks. Consider, for instance, a lowly tsuper who uses 30 liters of diesel for his jeepney in a one day. Through overpricing, oil firms are robbing each of the more than 400,000 jeepney drivers nationwide and their families around P225 per day. About 8.6 million households that use LPG are being robbed of some P147.58 per month. More than 700,000 fishers, who are the poorest sector in this country (50% of them try to survive on just P41 a day), shell out P75 per fishing trip to cover the cost of overpriced gasoline. The poorest Filipino households use kerosene for lighting and cooking and even they are being squeezed dry by the oil companies. (See Table 2)

From the burden of these poor sectors and the rest of consumers, oil companies squeeze P369.65 million everyday in extra profits from overpricing. Of this amount, Petron accounts for P124.59 million, followed by Shell with P91.41 million; Chevron, P40.66 million; Total, P14.31 million; and other players, P54.32 million. Even the Aquino administration gets its share from the profiteering of the oil companies through the 12% value added tax (VAT) imposed on oil to the tune of P44.36 million daily. (See Chart)

Regulate prices now

The Aquino administration at first refused to engage the issue of skyrocketing prices, as it has done on the general increase in prices of basic goods and services. (Read “A regime of high prices: Aquino’s apathy towards the poor”). But as the oil price hikes rage on and escalating people’s protests over high prices loom, government is now at least showing a semblance of concern. The Department of Finance (DOF) is reportedly considering subsidizing oil products consumed by the poor and reducing the VAT on petroleum. These measures are apparently the most “drastic” proposals that government is ready to make.

While any measure that can immediately bring down the price of oil (especially the scrapping of the 12% oil VAT) to provide much needed relief is welcome, we need a truly drastic reform. Overpricing must be addressed because even during times of low prices, consumers are still being exploited by the oil companies. Of course, there is a task force composed of the DOE and the Department of Justice (DOJ) that the Oil Deregulation Law created to look into the abuses of the oil players. But in the 13 years that this task force has existed, not a single oil company has ever been penalized for overpricing. Not even when the Director General of the National Economic and Development Authority (NEDA) himself is saying that they are overpricing (remember now Sen. Ralph Recto’s allegation in 2009 that oil products were overpriced by P8 a liter?).

The excuse for this is simple. As argued by the late Angelo Reyes, who as the then DOE chief lambasted Recto’s claim, there is no such thing as overpricing or a standard formula under deregulation. Every price adjustment is justified as a business decision in the name of competition and driven by the world market. But we all know that this is hogwash. More than eight out of every 10 liters of oil sold in the domestic market are from just four companies (Petron, Shell, Chevron, and Total) with tight links to the global oil cartel. They set the price adjustment and everyone else just follows. Government should stop using the world market as an excuse for being helpless. Otherwise, there is no more need for a government. At the very minimum and as an immediate policy reform, we need to regulate the price adjustments through a system of credible, democratic, and transparent public hearing. Hindi pwedeng “text-text” lang ang oil price hikes. (end)

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Consumer issues, Fiscal issues

Toll hike, VAT, soaring utility rates in lieu of new taxes

SLEx toll will quadruple due to VAT and privatization of infrastructure development (Photo from ryucloud/photobucket.com)

President Noynoy Aquino has promised that his administration will try not to raise or impose new taxes to bridge the widening fiscal gap, which is expected to reach a record high P325 billion this year. But while not imposing new taxes (yet) to address its fiscal woes, the Aquino administration is still squeezing the people dry through unabated increases in prices and rates charged by privatized and deregulated utilities, and by getting the most out of the previous administration’s most onerous and anti-poor revenue-raising tool – the 12 percent value added tax (VAT).

By the way, did you know that the VAT, like privatization, was also a legacy of Noynoy’s late mother, President Cory Aquino? On July 25, 1987, Cory issued Executive Order (EO) No. 273, adopting the VAT. Cory issued the EO just before the 8th Congress opened, thus preempting the legislature’s constitutional power to impose taxes. The move was a ploy to swiftly implement the International Monetary Fund’s (IMF) prescription to impose the VAT and ensure that the bankrupt Cory administration can raise revenues for continued debt servicing.

Controversial tax

Today, the ever controversial tax is again in the headlines following the insistence of Aquino’s Bureau of Internal Revenue (BIR) chief to impose the regressive VAT on toll. If Noynoy will not intervene and order the Department of Finance (DOF) and BIR to suspend its implementation, fees charged by toll operators around the country will go up starting Monday (August 16) as the cash-strapped Aquino administration collect from motorists the VAT on toll roads.

The table below summarizes the current rates and new rates to be charged (12 percent increase, representing the VAT) by major toll roads in Luzon, based on a notice released by the Toll Regulatory Board (TRB).

Meanwhile, those using the South Luzon Expressway (SLEx) will feel the double whammy of VAT and toll hike that will raise the toll charged by its private operator, the South Luzon Tollway Corp. (SLTC). Motorists using the SLEx will see their toll almost quadruple mainly because of the new rates approved by the TRB last May.

Ironically, the principal author of the 2005 VAT law Republic Act (RA) 9337, Senator Ralph Recto, is strongly opposing the move arguing that VAT should not be imposed on a government service. Recto, who belongs to Aquino’s Liberal Party (LP) and presently chairs the Senate ways and means committee, suffered the VAT backlash and lost his reelection bid in the 2007 midterm elections, which explains his stance on the VAT on toll. Aside from Recto, another LP member, Sen. Franklin Drilon is also questioning the BIR plan because it is supposedly imposing a tax on tax. Business groups, in particular those operating in Southern Tagalog’s industrial zones, on the other hand, have warned of commodity price hikes while transport groups plying the SLEx threatened to increase fares.

Aquino’s dilemma

While some prominent LP members are against it, the Aquino administration’s dilemma is that backing down on the BIR plan to collect the unpopular VAT on toll will further limit its already scant revenue sources, which have been perennially drained by trade liberalization, automatic debt servicing, promotion of foreign investment and export production, and onerous privatization contracts, on top of tax evasion, smuggling, and fat paychecks of high officials of the bureaucracy.

Given the persistent external pressure from the IMF for so-called fiscal consolidation and to hike the VAT rate to 15 percent, it is unlikely that Aquino’s economic team – led by ardent VAT champions and neoliberals DOF Secretary Cesar Purisima (who as Arroyo’s DOF chief helped design and lobbied for RA 9337) and Socioeconomic Planning Secretary Cayetano Paderanga (who was among the UP economists that pushed for VAT and VAT rate hike) – will advise Aquino to heed the public clamor and stop the VAT on toll. But if Aquino will push through with the VAT on toll, he risks suffering a major political blow very early in his term because of the measure’s unpopularity and severe impact on the people. Such setback can be further compounded in case the Supreme Court (SC) decides favorably on petitions filed against the VAT on toll amid growing public opposition.

Nonetheless, the pending toll hikes, whether implemented or not, further highlight the lack of real reforms that matter to the people under the Aquino administration. That Aquino is trying to widen the scope of the onerous and anti-poor VAT is proof that prospects of better and more decent living conditions for social sectors neglected by past regimes remain dim, if not dimmer.

VAT on privatized, deregulated utilities

And even if the VAT on toll is withdrawn, the continued implementation of neoliberal policies will still oppress the poor and impoverish more people. Note for instance, that in the case of SLEx, the VAT imposition is just a small portion of the enormous increase in toll that stems from infrastructure privatization, the same policy that Aquino highlighted in his State of the Nation Address (Sona). With Aquino’s promotion of so-called Public-Private Partnerships (PPPs), we expect more similar increases in the future as these are built-in mechanisms to make privatization attractive to potential investors. A case in point is the proposed MRT fare hike, which the Aquino administration is seeking in order to pay for the guaranteed debts and profits of private investors that took part in MRT’s development and ease government’s fiscal burden.

Indeed, indications show that privatization and deregulation will not only continue but will even expand under the new government. Just barely one and a half months into the much hyped Aquino administration, we have already seen oil prices and electricity rates go up. Players in the deregulated oil industry have recently raised the pump prices of diesel, kerosene and gasoline by 50 centavos to P1 per liter, with the Department of Energy (DOE), just like in the past, warning of more oil price hikes in the coming months. In addition, the Manila Electric Co. (Meralco) has again increased its generation charge by 44 centavos per kilowatt-hour (kWh). More nationwide increases in the privatized and deregulated power industry, based on petitions pending before the Energy Regulatory Commission (ERC), should be expected by hapless households.

In the context of its fiscal woes, the Aquino administration welcomes these increases despite their harsh effect on consumers as they mean more VAT collections for the government. In fact, oil and electricity are the two largest sources of VAT revenues, increasing in direct proportion with rising pump prices and monthly electricity bills. From November 2005 (when RA 9337 was implemented) to December 2009, the VAT burden from oil and power has reached P239.94 billion, or more than 65.3 percent of the total revenues (P367.28 billion) generated by RA 9337.

Similarly, higher toll means higher VAT collection for the government. Under the old SLEx fees, for example, government’s VAT revenues will only range from P2.64 to P7.80 per vehicle per trip. But under the new rates approved by the TRB, the VAT burden of SLEx users will quadruple to P10.2 to P30.6. Overall, taxpayers will shoulder a tax burden of more than P12 billion annually from the VAT on toll.

No new taxes? It does not make a difference amid rising rates and prices due to deregulation and privatization, and continued imposition and expanded coverage of the 12 percent VAT. And lest we forget, Aquino’s promise of no new taxes is highly conditional on the results of its anti-smuggling and tax evasion drive which means the worst is yet to come.

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Consumer issues, Power industry, Privatization

Meralco’s rate hikes and neoliberal power reform (1)

Photo from flickr.com/Maan Bernales

Consumers are again up in arms with the latest increase in electricity rates imposed by the Manila Electric Co. (Meralco). The utility giant called the rate hike “slight”. At 5.8 centavos per kilowatt-hour (kWh), maybe it will be hardly felt by Meralco’s 4.7 million customers in their August billing.

But the recent power rate increase is neither small nor negligible when viewed in the context of successive rate hikes in the previous months (amid rotating brownouts, no less). The past increases were also huge that some consumers complained of having to pay Meralco twice as much for the same consumption.

Long-held perception

The unabated rise in monthly power bills reinforced the long-held public perception that Meralco is greedy and abusive and government regulators are inutile. It also revived calls to immediately bring down power rates by scrapping the 12 percent value added tax (VAT) on electricity. Indeed, Meralco and the Energy Regulatory Commission (ERC) must be held to account and the VAT on power must be scrapped.

But these proposals are not enough. Power rates will remain exorbitant and power utilities like Meralco will continue to abuse consumers without reversing one of Gloria Arroyo’s most anti-people, anti-development, corruption-ridden legacies – the neoliberal privatization and deregulation of the energy sector through the Electric Power Industry Reform Act (Epira).

Soaring profits

Doubtless, Meralco is a bad company (for consumers, that is, but surely not for its stockholders). Its long list of illegal and over collection cases is a testament to its unscrupulous reputation. To be sure, the Energy Regulatory Commission (ERC) is an even worse regulator. Its habitual failure to check Meralco’s abusive practices, and in many cases even legitimizing them, demonstrates its bias for industry players.

Last year, Meralco’s net profits increased by a whopping 114 percent (from P2.8 billion in 2008 to P6 billion) mainly due to an ERC-approved 13.9-centavo per kilowatt-hour (kWh) hike in the distribution charge of the utility giant in April 2009. Then in December, the ERC approved another increase in Meralco’s distribution charge, this time by 26.9 centavos. The distribution charge of Meralco thus increased from P1.0831 per kWh at the start of 2009 to P1.2227 in April and then to P1.4917 in December.

Imagine how much profits Meralco will rake in this year once the December increase in distribution charge makes its presence felt in the company’s end-2010 balance sheet. But to give you an idea, Meralco disclosed to the Philippine Stock Exchange (PSE) that its first quarter 2010 profits grew by 135 percent compared to the same period in 2009 (from P0.8 billion to P2 billion).

Overcharging

One week approving after Meralco’s distribution rate hike in December, the regulatory body received the report of the Commission on Audit (COA) saying that Meralco illegally collected as much as P6.64 billion from its customers in 2004 (P4.7 billion) and 2007 (P1.93 billion). But instead of reconsidering its earlier decision allowing the utility to hike its distribution charge, the ERC sat on the COA report. It was only after more than one and a half months since receiving the audit body’s findings that the ERC started to hear the case.

Amid this fresh allegation of overcharging, the ERC still allowed Meralco to continuously jack up its rates to recover the supposed increases in the cost of power generation like the 5.8-centavo/kWh increase this month. Prior to this increase in generation charge, Meralco also raised it by 44 centavos in February, P1.83 in March and P1.20 in April. It eased by P1.26 in May that the utility attributed to lower price of power it buys from its suppliers. But it again jumped by 18 centavos in June.

Remember also that until today, Meralco has yet to fully implement the billions of pesos in refunds that it owes to consumers worth more than P34.12 billion, including the P30.2 billion in income taxes that Meralco illegally collected from 1994 to 2002.    

VAT on power

Meanwhile, the 12 percent value added tax (VAT) imposed on electricity continues to be an onerous burden for consumers. In the case of the power industry’s system loss, VAT is doubly onerous since it is a consumption tax charged on electricity that is not even consumed.

In 2009, the Bureau of Internal Revenue (BIR) collected P10.6 billion (preliminary data) in VAT from the power industry and electric cooperatives. Since electricity was included among VAT-able goods and services in November 2005, no thanks to Republic Act (RA) 9337, the government has already collected a total of more than P47.41 billion in VAT on power.

Latest national data on electricity sales is 2008, pegged at 49,206 gigawatt-hours (GWh). Meanwhile, VAT collection from the power sector during the same year was P16.05 billion. This means that on the average, VAT collection from the power sector in 2008 was about 32.6 centavos per kWh.

System loss in 2008 for the entire power industry was about 12.63 percent of total electricity sales. This means that on the average, hapless consumers shelled out more than P2 billion to pay for the VAT on electricity they never used.

(To be concluded)

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Fiscal issues

World Bank, bad bank: Gas tax hike proposal to hurt the poor

The World Bank, in its latest quarterly report on the Philippines, recently proposed that government increase the current excise tax of P4.35 per liter on imposed on gasoline products to ensure a quality implementation of Arroyo’s fiscal stimulus plan and address a ballooning budget gap.
According to the multilateral lending institution, its proposal would “improve the progressivity of the tax system as petroleum products are disproportionately consumed by the richer citizens”. In other words, it is acceptable to hike current taxes imposed on gasoline products because the poor will not be hurt.
The World Bank, a global institution controlled by the US and other rich countries, has become increasingly discredited and notorious through the years. For a brief discussion on how it works to intensify global poverty, as told by a former World Bank insider, watch the short video below.
With just a little over two weeks before Mrs. Gloria Arroyo deliver her supposedly farewell State of the Nation Address (SONA), I expected Malacañang to issue an outright rejection of the World Bank proposal. Severely wanting in favorable public opinion and amid persistent allegations of overpriced petroleum products, a categorical “no” from government would have been at least a positive public relations move.
But Finance secretary Margarito Teves, while acknowledging that the World Bank proposal is untimely, said that his department is seriously studying the suggestion and implied that if the World Bank can convince them, they might increase the gasoline excise tax, albeit in a proper time. Maybe after SONA?
There are two points I wish to raise here. One, petroleum products in the country are already artificially and unjustly high due to onerous taxes such as the 12% value added tax and overpricing especially by the Big Three (Petron, Shell, and Chevron) oil cartel. Further increasing gasoline prices through a higher excise tax will further aggravate the injustice and abuse that consumers already suffer.
Two, it is not true that the poor will not be hurt. It has been the recurring argument of Malacañang in its efforts to justify the continued imposition of the 12% VAT (which incidentally, Arroyo worked hard to increase from 10% to the current 12% starting in November 2005). But studies we made at Bayan point to the contrary. For instance, in the case of gasoline products, private car owners are not the only ones who will bear the impact of an excise tax hike. Tricycle drivers and small fishers using motorized bancas who also use gasoline products for their livelihood will be hurt more.
These people barely earn enough to meet the daily needs of their families and every centavo that will be added to their expenses will certainly make their daily existence much harder. At present, almost 600,000 tricycle drivers nationwide directly pay government P9.42 per liter in taxes on unleaded gasoline, representing the 12% VAT and the current excise tax of P4.35 per liter. Such taxes are already burdensome for them as they consume an average of 4 liters a day and thus pay government almost P38 daily in taxes.
Similarly, some 700,000 small fishers using motorized bancas directly pay government P9.10 per liter in taxes on regular gasoline, representing the VAT and excise tax. Per fishing trip, a fisher consumes as much as 10 liters and thus pay government almost P91 daily in taxes.
The World Bank, together with its twin the International Monetary Fund (IMF), has significantly shaped the country’s fiscal policies over the decades. It has strongly supported and pushed for more and higher taxes including the VAT to ensure that government would be able to service its debt obligations. At the same time, the World Bank has firmly opposed policy reforms to control the prices of basic goods and services such as the repeal of the Oil Deregulation Law. It has pushed for lower government spending on social services and promoted the privatization and commercialization of such services.
The people must oppose this latest policy dictate (cloaked as “proposal”) of the World Bank. The burden of addressing the budget gap and raising tax revenues should not fall on the shoulders of the poor. The 12% VAT on oil products must be scrapped and additional revenues should be generated through efficient tax collection, curbing corruption and smuggling, arresting the biggest tax evaders which are the corporations, and re-imposing the eliminated or reduced tariffs on imported goods.
World Bank logo

World Bank logo

The World Bank, in its latest quarterly report on the Philippines, recently proposed that government increase the current excise tax of P4.35 per liter imposed on gasoline products to ensure a quality implementation of Arroyo’s fiscal stimulus plan and address a ballooning budget gap.

According to the multilateral lending institution, its proposal would “improve the progressivity of the tax system as petroleum products are disproportionately consumed by the richer citizens”. In other words, it is acceptable to hike current taxes imposed on gasoline products because the poor will not be hurt.

The World Bank, a global institution controlled by the US and other rich countries, has become increasingly discredited and notorious through the years. For a brief discussion on how it works to intensify global poverty, as told by a former World Bank “insider” – its former Chief Economist Joseph Stiglitz – watch the short video below.

With just a little over two weeks before Mrs. Gloria Arroyo deliver her supposedly farewell State of the Nation Address (SONA), I expected Malacañang to issue an outright rejection of the World Bank proposal. Severely wanting in favorable public opinion and amid persistent allegations of overpriced petroleum products, a categorical “no” from government would have been at least a positive public relations move.

But Finance secretary Margarito Teves, while acknowledging that the World Bank proposal is untimely, said that his department is seriously studying the suggestion and implied that if the World Bank can convince them, they might increase the gasoline excise tax, albeit in a proper time. Maybe after SONA?

There are two points I wish to raise here. One, petroleum products in the country are already artificially and unjustly high due to onerous taxes such as the 12% value added tax and overpricing especially by the Big Three (Petron, Shell, and Chevron) oil cartel. Further increasing gasoline prices through a higher excise tax will further aggravate the injustice and abuse that consumers already suffer.

Two, it is not true that the poor will not be hurt. It has been the recurring argument of Malacañang in its efforts to justify the continued imposition of the 12% VAT (which incidentally, Arroyo worked hard to increase from 10% to the current 12% starting in November 2005). But studies we made at Bayan point to the contrary. For instance, in the case of gasoline products, private car owners are not the only ones who will bear the impact of an excise tax hike. Tricycle drivers and small fishers using motorized bancas who also use gasoline products for their livelihood will be hurt more.

These people barely earn enough to meet the daily needs of their families and every centavo that will be added to their expenses will certainly make their daily existence much harder. At present, almost 600,000 tricycle drivers nationwide directly pay government P9.42 per liter in taxes on unleaded gasoline, representing the 12% VAT and the current excise tax of P4.35 per liter. Such taxes are already burdensome for them as they consume an average of 4 liters a day and thus pay government almost P38 daily in taxes.

Similarly, some 700,000 small fishers using motorized bancas directly pay government P9.10 per liter in taxes on regular gasoline, representing the VAT and excise tax. Per fishing trip, a fisher consumes as much as 10 liters and thus pay government almost P91 daily in taxes.

The World Bank, together with its twin the International Monetary Fund (IMF), has significantly shaped the country’s fiscal policies over the decades. It has strongly supported and pushed for more and higher taxes including the VAT to ensure that government would be able to service its debt obligations. At the same time, the World Bank has firmly opposed policy reforms to control the prices of basic goods and services such as the repeal of the Oil Deregulation Law. It has pushed for lower government spending on social services and promoted the privatization and commercialization of such services.

The people must oppose this latest policy dictate (cloaked as “proposal”) of the World Bank. The burden of addressing the budget gap and raising tax revenues should not fall on the shoulders of the poor. The 12% VAT on oil products must be scrapped and additional revenues should be generated through efficient tax collection, curbing corruption and smuggling, arresting the biggest tax evaders which are the corporations, and re-imposing the eliminated or reduced tariffs on imported goods.

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