* This is my column in BusinessWorld on June 28, 2018
Fans, allies, and supporters of Dutertenomics continue to
cite high world oil prices as the reason for the Philippines’ rising inflation
rates.
As expected, they maintain that tax hikes imposed by the
newly implemented revenue legislation — Tax Reform for Acceleration and
Inclusion (TRAIN) — have little impact on inflation.
The numbers for many countries say otherwise.
All countries were affected by high world oil prices but
only a few of them have introduced higher taxes starting January 2018, unlike
the Philippines. The result is indeed ugly for Dutertenomics to accept (see
table).
Even with these results, certain adjustments — if
implemented — will have additional inflationary pressures.
These include:
One, fare hikes on public land transportation such as
jeepneys, taxi, ride-hailing vehicles, UV expresses, and buses.
Owing to higher oil prices combined with increased taxes,
several vehicle operators may be forced to cut costs elsewhere — buying cheaper
spare parts, for instance — if they aren’t given the chance to raise fares, at
least until end-2018.
Two, wage hikes by many companies that are reeling from
the uncertainties of TRAIN 2 on the removal of various fiscal incentives.
Three, another round of oil/LPG/coal tax hikes by January
2019 or half-year away.
One option that Dutertenomics and its allies has not
seriously considered is the reduction of VAT from 12% — the highest in ASEAN,
higher than those in Japan, South Korea, Taiwan, China, Australia — and reduce
the number of exempted sectors. Prosperous Hong Kong has zero VAT or gross
sales tax (GST); Malaysia has also abolished its 6% GST as a result of
Mahathir’s campaign promise. Cutting VAT from 12% to 8% (Taiwan has only 5%,
Singapore has 7%, Japan has 8%) or even 10% will be a good anti-inflation
policy.
On the positive side, Dutertenomics is pushing for the
abandonment of rice protectionism this year, liberalizing trade imports by
converting quantitative restrictions into lower tariff, no cap or maximum on
rice importation. They project that rice prices can go down up to P7/kilo and
hence, food inflation will follow.
This is a good move but pushed rather late instead of
being legislated side by side with TRAIN 1. But it is better late than never.
Besides rice, government should also consider freer trade
in many other commodities — clothes, shoes, appliances, gadgets and consumer
electronics, oil, etc.
And we go to the subject of protectionism.
To stop or reduce all those accusations of who’s
protectionist, (1) everyone or all countries should go for zero or near-zero
tariff, zero or near zero subsidy, and minimal non-tariff measures/barriers
(NTM/NTBs). And (2) let this demand will come from us, consumers, not from
Trump or any head of state or politician.
Free trade, zero or near-zero tariff, is beautiful and is
currently done by 10 member countries within the ASEAN, done by 28 member
countries within the European Union (EU).
Free trade means cheaper commodities — cheaper food and
medicines, cheaper oil and gas, cheaper mobile phones and computers, cheaper
cars and motorcycles, etc. — and low inflation (even deflation for some), more
consumption of more goods by the people.
On the global scene, here is one example.
Tariff rates on imported cars are 25% in Canada, 10% in
the EU, and 2.5% in the US.
When Trump challenged equalized zero tariff for all, the
others got angry. When Trump challenged equalized high tariff, the others
remained angry.
So one big problem is that while people enjoy more
choices via free trade, they also produce all sorts of protectionist excuses
why free trade cannot be done in their country then lambast some leaders and
countries for being protectionist. Double talk and trade hypocrisy is very
evident here.
There are net gains (positives outweigh the negatives)
from free trade and there are net pains from protectionism.
---------------
See also:
BWorld 217, Dutertenomics, TRAIN and high inflation, June 02, 2018
BWorld 220, Trade imbalances, protectionism and rhetoric, June 15, 2018
BWorld 224, China mercantilism and US free trade challenge, July 10, 2018
BWorld 225, Anti-reason of Duterte’s anti-tambay order, July 11, 2018
BWorld 226, The EPIRA is working, July 12, 2018
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