Unstudied

I have a businessman-friend who, instead of slapping his head whenever government seems to be shooting the economy in the foot, drops me a note.

The latest one, abundant with frustration, is a reaction to that last minute insertion of a 3,000 percent increase in the tax on coal in the Senate version of the tax reform bill. Sen. Loren Legarda, whose son sells imported solar power equipment, is responsible for that totally unstudied insertion.

My friend has long been railing against the Feed-in Tariffs (FIT) that push up power costs for all consumers. Now comes this proposed coal tax which will push up power costs significantly. I can sympathize with his rant.

Over the last few years, he points out, the private sector has been going out on a limb to build enough power capacity and alter the power mix to bring down the costs of power. At each turn, it seem, the politicians find a bizarre way to push up costs.

Bringing down the costs of power is critical to our economic development. When we were hit with power shortages and costs rose to among the highest in Asia, our industrial base shrunk. The costs of power debilitated them. Their costs of production could not be competitive.

When our manufacturers closed shop, millions were pushed to unemployment. Our poverty rates spiked. Misery multiplied. Millions were forced out of the domestic economy, to take their chances abroad.

When we began improving on our power supply, with competition enforcing efficiency in generation, the wise guys invented FIT to guarantee profit for a small class of investors in so-called “renewable energy.” That kept our power costs higher than they should be.

This year, we felt we were on the cusp of a manufacturing renaissance. In the third quarter, manufacturing posted a 9.9 percent growth rate. This sector provided meaningful employment to non-college graduates in the tens of thousands.

The carbon tax will abort that.

At the moment, private enterprise invested billions in larger super critical clean coal plants. They will carry much of the load of our expanding power needs. If the legislators put in some thinking, they might have taxed carbon emissions instead of fuel. They might have banned the obsolete induction steel mills discarded by China and sold cheap to local speculators.

Baseload

Coal-fired plants are our cheapest source of reliable power supply. The only thing cheaper is nuclear power.

Today, coal plants account for 48 percent of the nation’s power supply. Luzon, which accounts for the major portion of our GDP, is 50 percent coal reliant. If the unthinking coal tax is imposed, everybody pays more for power. The impact on inflation cannot be understated.

The badly thought-out excise tax on coal is on top of the 12 percent VAT imposed on the product. The effect of the excise tax is to magnify the VAT due. Some of our electric cooperatives are 100 percent dependent on coal-generated power. They will be badly hit.

Since some coal-fired plants provide ancillary services to the grid, the coal tax will bring up transmission charges on top of generation charges. Remember that the original tax reform measure imposes higher excise taxes on diesel and bunker oil. That alone will force up power costs. The coal tax aggravates it unnecessarily.

The increased tax on diesel and bunker fuel will affect the more distant, poorer communities that rely on oil-fired generators. Mindanao electric cooperatives participating in the Modular Generator Sets Program will be badly hit.

According to the 2016 World Energy Trilemma Index, published by the UN-accredited World Energy Council, the Philippines is leading the way in environmental sustainability even as coal remains a major power source. We rated better than 124 other countries including Denmark, Switzerland, Sweden and Germany in the sustainability dimension. What we need to work on are the access and affordability dimension.

Legarda’s coal tax proposal undermines our strengths and does not address our weaknesses.

Vested interests

How did we ever get to this problem called the coal tax that our business community is up in arms about?

The Senate, over the past few weeks, was preoccupied entertaining vested interests of every sort. There were those who wanted to keep their VAT exemptions. They were those that wanted lower excise taxes on products they make money on, like the soft drinks manufacturers. There were those resisting higher excise taxes on luxury vehicles.

Some senators were too kind to the vested interests. They maintained the exemptions of those who otherwise should be included in the VAT net. They moderated other excise taxes to levels that would please existing players.

As a result, when they added up the numbers, the Senate version would add nearly a negligible sum to government revenues. Having maintained the exemptions of those that did not deserve them, the Senate version arrived at a tax package that could not support the Build, Build, Build program nor expand the cash transfers.

With time running out, what did the senators do? They took out the hammer and nailed in the coal tax, dumping the tax load on a commodity environmentalists love to hate. They did that without fully studying the effects that would have on the entire economy.

There can be no worse way to pull the rug from under our economic growth than the coal tax – even as it might work well for Legarda who styles herself an environmentalist whose son peddles solar power kits.

All the rest of us will suffer from this grossly unstudied measure.