Good news, bad news on first week of 2019

Starting on the first day of January this year, the second round of increase of excise taxes on all fuel products as provided for under Republic Act 10963, otherwise known as the Tax Reform Acceleration and Inclusion (TRAIN) Law, took effect. Upon advice and recommendation of his economic managers, President Rodrigo Duterte decided to proceed with the implementation of additional P2 per liter excise tax on gasoline and other refined oil products.

President Duterte signed the TRAIN Law in December 2017 and took effect on Jan. 1, 2018. In its initial stage of implementation, the TRAIN Law imposed a P2.50 per liter excise tax on diesel, from zero, and hiked the levy on gasoline to P7 per liter. 

The second round of increase of excise tax on petroleum product imposes P2 more per liter. This means that the excise tax on diesel will go up to P4.50 per liter and on gasoline to P9.  While the hike in excise tax was supposed to take effect on the first day of January this year, the Department of Energy (DOE) ordered all gasoline station owners and other retailers that they must first consume all their fuel stocks acquired at old excise tax rates and prices.

Thus, according to the DOE directives, the impact of the higher excise tax on fuel products should be reflected on fuel prices not now but later, probably by the middle of this month.

And the latest good news is a new round of big-time oil price rollback projected this weekend at the earliest.

President Duterte gave the go-signal to proceed with the scheduled next round of excise tax increase on all fuel products based on the declining trend of crude oil prices in the world market. The continuing glut in the crude oil world market led to the series of rollbacks in the domestic prices of gasoline, diesel, and other refined oil products for the past four weeks. The latest was a big-time rollback last week by as much as P1.80 per liter for gasoline and P1.30 per liter on diesel.

The presidential decision came after his economic managers were pressed to implement the automatic suspension provision of the TRAIN Law in case world price of crude oil hits the $80 per barrel mark. Although global oil prices have considerably gone down, persistent calls to suspend this particular provision of the law came to a head when the country’s inflation rate hit an average of 6.7 percent in October, the highest recorded last year.

Among other things, the TRAIN Law provided exemption to workers who earn P250,000 annually or P21,000 monthly and below from paying personal income tax (PIT). On the other hand, those earning over P250,000 assumed the burden of higher tax rates in accordance with the PIT schedule of the TRAIN Law.

But whatever gains generated in terms of additional income in monthly paychecks out of the TRAIN Law, these were negated by the inflationary impact on basic goods and services. Aside from refined oil products, the TRAIN Law imposed higher excise taxes on coal, cosmetics, tobacco, documentary stamps, and several other financial transactions.

Mr. Duterte’s economic managers led by Finance Secretary Carlos Dominguez originally estimated the impact of TRAIN Law will likely push inflation by an average of 0.4 percent on month-to-month basis. However, actual average of inflation rate started to scale up starting July last year when the prices of basic goods and services soared to more than 6 percent. 

Unforeseen events like the failure of the National Food Authority (NFA) to import rice stocks during the lean period coupled by the typhoon damages pushed prices of staple in the wet markets. The rising prices of crude oil in the world market during that period and fluctuations in the peso-dollar exchange rate further pushed up inflation rate.

As the chief monetary policymaker, the Bangko Sentral ng Pilipinas implemented belatedly the strongest interest rate hike in ten years by raising interest rates twice in a row last year “to tame” the inflation spike. Stepping in also to avert further inching up of inflation rate, President Duterte approved a slew of administrative measures from relaxing import tariff rates and removal of non-tariff barriers to stabilize the supply of rice, fish, and other basic goods.

Thus, average inflation rate eased from the plateau of 6.7 percent and slowed down to 6 percent in November, the first decline this year, according to the Philippine Statistics Authority (PSA).

The PSA is scheduled to hold a media briefing today on its regular monthly monitoring of consumer price index from which average inflation rate is derived. Initial estimates showed inflation rate has slowed to a 6-month low for the entire month last December. It was largely due to the series of fuel price reductions and easing of food prices despite the higher demand during the just concluded holiday season.

The BSP expects inflation to return to its target range this year, with the average seen at 3.18 percent from the expected 5.2 percent average recorded in 2018. 

Another good news is the reported projections of more new jobs being created with the picking up of pace in the implementation of the projects under the Build, Build, Build infrastructure program of the government. The Department of Labor and Employment (DOLE) announced on Wednesday that the government expects around 900,000 to 1.1 million jobs will be created this year in our country compared to the 826,000 local jobs generated last year.

More jobs mean more income for the many previously unemployed Filipinos.

Meanwhile, the bad news is customers of both the Manila Water Inc. and Maynilad Water Services have to pay higher water rates. Consumers of Manila Water will be charged 64 centavos more per cubic meter while Maynilad customers will be paying P1.48 more per cubic meter. The higher water rates took effect first day of this month.

The Metropolitan Waterworks and Sewerage System (MWSS) approved the rate hikes for both concessionaires based on the 5.7 percent inflation rate in July last year.

That’s another blowback of inflation if not effectively restrained.