* This is my article in BusinessWorld last Friday, February 22, 2019.
“Socialist
governments make a financial mess. They always run out of other people’s money.
They then start to nationalise everything, try to control everything by other
means.”
— Margaret Thatcher (TV interview February 5, 1976, 3
years before she became UK Prime Minister)
MODERN day socialists and populists in governments,
explicit and implicit, are aware of the limits of governments giving all sorts
of endless, no timetable subsidies, discounts and other welfarist programs. So they
invented a new form of welfarism — forcing private corporations to give
mandatory discounts (restaurant food, medicines, fare in public transportation,
etc.) to people, rich and poor no distinction. Politicians and governments get
the credit while corporations get the financial burden as those forced
discounts cannot be used for tax deduction.
There are two existing laws that force and coerce private
corporations to give mandatory 20% discounts on fare, medicines, all-year
round: (1) RA 9994 “Expanded Senior Citizens Act of 2010,” and (2) RA 9442
(2007) “Amending RA 7277 ‘Magna Carta for Disabled Persons.’” Both laws do not
allow the fare discounts, medicines discounts, food discounts, etc. for tax
deduction. Only the private corporations will shoulder the full cost in the
form of lower revenues.
Now there are bills in Congress, House Bill (HB) 8885 and
Senate Bill (SB) 1597 “Student Fare Discount Act,” both passed on third
reading, forcing all public transportation operators to give all Filipino students
from elementary to tertiary, technical and vocational, a 20% mandatory discount
all-year round including weekends and holidays, and covers all means of
transportation — buses, jeepneys, tricycles, taxi, TNVS, TNCs, trains,
airplanes and passenger ships.
HB 8885 has two compensatory and relief provisions for
public transportation operators: (1) tax deduction from gross income for the
same taxable year, and (2) reduction or exemption from some regulatory fees and
charges. SB 1597 has none.
A bicameral committee meeting will be set after the May
elections and guess what bill will prevail when the DoF comes in? Very likely
the Senate version because the DoF just wants tax-tax-tax and dislikes tax
deductions.
Fare control and price control without tax deduction are
wrong and socialistic because they distort pricing by private enterprises. In
the case of mandatory fare discounts say for airlines, poor students may travel
and avail the discount only once or twice a year. Rich students (and senior
citizens) can travel 10, 20 times a year or more and avail more discounts while
earning more air mileage.
The price distortion can be represented by the graph
here. If there are no laws on mandatory and forced discounts, the equilibrium
price or fare will be at point A and buslines, taxis, airlines, shipping lines
can make money subject to competition.
With mandatory 20% discount, the demand curve shifts to
the right, there will be more travels by students, senior citizens and persons
with disabilities (PWDs) as their fare goes down to point B. Some or many
transportation companies will risk going bankrupt if they will endure this, so
they have to raise the price for the regular passengers to point C so that the
composite or weighted average fare can go back to point A.
So the mandatory price discount has created a new
inflationary pressure, higher prices and fares for non-students, non-senior
citizens and non-PWDs.
Mandatory discount is fare control, price control and
profit control. The government wants to control how much revenues the
corporations can make. Private enterprises adjust and raise the price for
everyone else.
A good way to avoid this price distortion is to junk
these two bills but this is impossible now because they have been passed on
third reading. A compromise is to adopt the House version, the cost of all
student fare discounts will be credited for tax deductions and reductions of
other regulatory fees and charges.
In case DoF will prevail and the Senate version will be
adopted, then ordinary passengers will endure the cost of higher fares and they
can demonize the DoF for causing another round of consumer inflation via higher
fares — in buses, taxis, TNVS, airlines, shipping lines.
----------------
See also:
BWorld 293, Solar para sa pulitika, Rice Tariffication para sa masa, February 13, 2019
BWorld 294, The freedom to fly, February 23, 2019
BWorld 295, Growth and electric cooperatives, February 24, 2019
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