“It is vain to talk
of the interest of the community, without understanding what is the interest of
the individual.” — Jeremy Bentham (1748-1834, English philosopher and
economist who pioneered utilitarianism)
Among the common strategies used by an oppressive policy
or government is to subsume and disregard individual concerns and put the
community and society on top of almost everything.
The Tax Reform for Acceleration and Inclusion (TRAIN) law
has raised energy taxes, sugar taxes, and other taxes to “compensate” for the
cut in personal income taxes. Household concerns about the acceleration of
inflation were muted in the crafting of the law because of the supposed higher
communal and societal interests such as Build, Build, Build and other welfare
programs including free education, health care, irrigation, among others.
The premise is that the Build program is not possible
without higher taxes, without new loans especially from China communist
government, and that existing taxes and welfare programs are still
insufficient. It is a flawed and lousy premise.
Now the households’ feared concern of accelerating
inflation has taken place.
This is shown by the numbers in the graph which covers
the four richest economies in North America and Europe and Asian economies. As
of this writing, some countries have reported their March 2018 inflation rate
and the rest have not. An average for the two or three months of 2018 is taken
and compared with the numbers for December 2017 as base year (see table).
The Philippines is the outlier here, posting a higher inflation rate than the rest despite three things.
One, despite the fact that all countries were affected by
higher world oil prices, some even experienced decline in consumer prices. West
Texas Instrument (WTI) prices rose from $43/barrel in 2016 to $51/barrel in
2017 and $63/barrel average for January-February 2018.
Two, despite the fact that pass-on rates of higher oil
taxes and other tax hikes have not been implemented yet. Fare hike petitions by
jeepneys, UV express, buses, shipping companies, and airlines have not been
acted upon.
Three, despite the sudden rebasing of the consumer price
index (CPI) from 2006 = 100 to 2012 = 100 by February 2018.
There are two moves by government to control further
damage wrought by its huge oil tax hikes. One is to not act or grant all fare
hike petitions this year, forcing all public transportation companies (land,
water, and air) to endure and absorb the high oil tax hikes.
Two, it can delay the approval of all fare hikes until
late 2018, then allow the second round of the three-year oil and coal tax hikes
by January 2019. It can also further delay second round of fare hike
adjustments to late 2019.
Are these high oil tax increases of nearly P7/liter in three
years, including higher coal, sugar, and other taxes really necessary to
finance Build, Build, Build?
This was indirectly answered in the forum, “Financing
Inclusive Infrastructure” by Stratbase-ADRi last week, April 5 at The Tower
Club in Makati City. The main speaker was Dr. Alvin Ang of Ateneo Economics
department.
Alvin identified two main sources of funding big
infrastructure and Build, Build, Build via foreign aid/Official Development
Assistance (ODA) and/or Public-Private-Partnership (PPP).
More ODA obviously would mean more taxes to pay for big
loans from foreign governments like China or from multilaterals like the World
Bank and the Asian Development Bank. Alvin did not differentiate between
integrated PPP (construction and O&M done by one entity) and hybrid PPP
(construction and O&M done by two separate entities) but he was implying
the latter. And he suggested that either way, ODA or PPP financing remain
desirable and a lesser problem compared to execution problems like right of way,
corruption in procurement, and budget bottlenecks.
As argued in previous papers in this column, the policy
reversal of this administration from integrated PPP to hybrid PPP so that more
loans particularly from China will be “needed” is wrong.
Many local private players can finance big infrastructure
on their own and hence, will not need TRAIN tax hikes leading to higher
inflation and more business uncertainties. These local players are more than
willing to finance and operate big local infrastructure because they intend to
become big PPP players in the region now, and the world someday.
The mistake of TRAIN 1 in high energy taxes can be
corrected by the TRAIN 2 bill now in Congress. Like a significant tax cut in
corporate income (from 30% to 15-20%) with few exemptions, and discontinuation
of oil and coal tax hikes in 2019-2020.
Bienvenido S. Oplas, Jr. is President of Minimal
Government Thinkers, a member-institute of Economic Freedom Network (EFN) Asia.
----------------See also:
BWorld 200, IPR in the ASEAN and plain packaging in the West, April 03, 2018
BWorld 201, Expanded environmental rights and anti-coal drama, April 05, 2018
BWorld 202, Tourism, casinos, and Boracay, April 08, 2018
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