Government and Taxes: January 2023

Saturday, January 14, 2023

BWorld 578, Ten predictions on energy markets in 2023

* My article in BusinessWorld last January 9.
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Continuing this column’s “Top 10” economic series, this 4th installment will cover energy projections for 2023, five global and five national predictions.

1. World oil demand will reach 102 million barrels per day (mbpd).

Data from the Organization of the Petroleum Exporting Countries (OPEC) show that world oil demand was 100.18 mbpd in 2019, 91.16 mbpd in 2020, and 97.01 mbpd in 2021. OPEC projects 99.56 mbpd in 2022, and 101.77 mbpd in 2023. Big demand will come from the US and China, with a combined 36 mbpd next year.

2. World oil supply will likely reach 102 mbpd too.

The liquids supply — crude, non-gas liquids or NGLs, other non-conventional liquids — from non-OPEC countries, which include the USA, Russia, and Canada, will reach 67.1 mbpd. OPEC crude and other liquids will likely reach 35.5 mbpd, so this column predicts a world supply of 102.6 mbpd this year. All oil-producing countries except Russia are expected to have a continued rise in output (see Table 1).

3. The decline in fossil fuel (FF) consumption by rich countries will continue.

Using the data in Table 2 of this column’s “Top 10 energy stories/ideas 2022” (Dec. 19, 2022) to make projections for 2023, the USA and Canada — with a projected consumption of 223-230 petajoules (PJ) per million population — will soon be overtaken by South Korea and Taiwan with 202-214 PJ this year. Singapore will remain the most fossil-fuel intensive country in the world with about 660 PJ this year.

4. China will overtake Germany in kilowatt hours (kWh) per capita power generation.

In 2021, China saw power generation of 6,042 kWh/person while Germany had 7,026 kWh/person. This year, China will have about 8,076 kWh/person while Germany will have 7,021 kWh/person. Because China and most Asian countries will expand their fossil fuel use, their power generation per capita keeps rising, which is not happening in Germany and the industrialized west.

5. The industrialized west will slowly realize the folly of ditching fossil fuel plants and relying on intermittent power production.

Germany, the largest economy in Europe, is currently led by the politically socialist Social Democratic Party (SPD), and the ecological socialist Greens Party. Their smaller partner, the Free Democratic Party (FDP), will try to inject some sanity into economic and energy policies but both SPD and Greens ran on a strong anti-fossil fuel, anti-nuclear power platform. Such an ideology is detached from the reality of possible blackouts in winter, so Germany has begun to run their old coal power plants again to void blackouts. This trend will continue in many other industrialized countries.

6. The Philippines will finally reach 1,000 kWh/person in power generation.

From 589 kWh/person in 2000 and 982 in 2021, we should reach around 1,044 kWh/person in power generation this year — the first time that we will reach the 1,000 kWh/person mark. It should be clear that we should aspire to expand power generation in megawatt-hours (MWH), not just megawatts (MW). A 1,000 MW solar farm will have a dependable capacity of only around 180 MW, while a 1,000 MW coal or gas plant will have a dependable capacity of around 800 MW. So, power generation in 24 hours is much higher under fossil fuel plants than intermittent solar or wind power.

7. But yellow-red alerts, and near blackouts will continue this year.

Until December 2022, both the Luzon and Visayas grids experienced yellow alerts due to thin and insufficient power reserves. A lot of the incoming capacity will be from intermittents and non-power generating batteries.

The abolition of electricity price control or primary and secondary price cap (SPC) at only around P6.25/kWh will likely be discussed this year. From September-December 2022, an SPC was imposed about 60% of the time at the spot market. Such a high incidence of price control means that no new big peaking plants will provide the necessary reserves when demand is very high or supply is down significantly.

8. Carbon taxation will be re-introduced but will fail.

The first big attempt at imposing carbon taxation was back in 2017 when a former National Economic and Development Authority (NEDA) Secretary lobbied that the coal tax should rise from P10/ton to P600/ton. This was carried out in the Tax Reform for Acceleration and Inclusion (TRAIN) Law of 2017 (RA 10963) with the coal tax raised to P150/ton. As shown in Table 2, the Philippines’ fossil fuel consumption per capita is the lowest in the ASEAN 6, far behind the economic tigers of North Asia and the industrial world. Penalizing Philippine businesses and households with higher power prices via a carbon tax will only attract political and economic backlash.

9. Nuclear power will get piecemeal approval in the country.

Last December, two stories in BusinessWorld reported that: 1.) Meralco will look into small nuclear reactors, and, 2.) AboitizPower is eyeing nuclear project. Then there was a recent report, “Energy department designates RE, nuclear as 2023 priorities” (Jan. 2, 2023). Nuclear power, at least small modular reactors (SMRs), is a good long-term solution both for off-grid island provinces and the main grids.

10. Solar streetlights, solar rooftop will continue expansion.

Many electric cooperatives, protected by the National Electrification Administration (NEA), are wasteful. For instance, some friends in Central Pangasinan pay about P19/kWh under CenPelco versus the Meralco rates of P10/kWh as of the December billing. So, many rural people and barrio officials put up lots of solar street lights, solar fence lights, etc. This trend will continue in 2023 and beyond.

I got importation data from the Philippine Statistics Authority (PSA) — 2020 to October 2022. Here are the numbers for solar panels, solar lights, and lamps and lighting fittings, average per month. Volume: 9.37 tons in 2020, 8.27 tons in 2021, and 11.91 tons in 2022. Value: $25.28 million in 2020, $28.92 million in 2021, and $38.69 million in 2022.

Average monthly volume declined — 11.8% in 2021-2022, an increase of only 27% in 2022 over 2020. Since there was a large expansion in solar farms last year, it is possible that illicit/smuggled solar street lights are coming in high volumes.

Meanwhile, the first of the quarterly Ruperto P. Alonzo (RPA) lecture series sponsored by the University of the Philippines School of Economics (UPSE) Program in Development Economics (PDE) Alumni Association, will be held on Feb. 8 at the UPSE auditorium. The speaker will be Cynthia Hernandez, Executive Director of the Public-Private Partnership (PPP) Center. Ms. Hernandez will talk about 28 years of the build-operate-transfer law and the way forward. She is an engineer-economist from UP, an alumna of PDE batch 33, and a former student of Prof. RPA (RIP).
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Covid 78, The dishonest narratives, WEF volatility report

These are the Covid narratives that I find dishonest and corrupt.

1. Natural infection per se even among the young and healthy is bad, hence endless masks, distancing, etc.

2. Natural immunity from natural infection cannot be trusted. Only vax and booster immunity should be trusted.

3. Post-vax diseases and deaths are due to something else. Emergency use vax are pure safe and effective.

4. Cheap, off patent, proven for 4+ decades like Ivermectin cannot be trusted. Only expensive treatment should be trusted.

5. Only the virus evolve into many variants. Humans and their innate immunity don't evolve to deal with these new variants.

Wala nang trangkaso (regular flu), Covid na lahat. Trangkaso is not scary but Covid is scary, hence the endless reference to Covid.

It's now 2023 and the Covid establishment still calls it COVID-19, they should call it Covid-23 because these are different variants of the virus already from the 2019-2020 variants. But Covid-19 has the most alarmist, most lockdown-justified, most mandatory vax-justified disease, so they -- WHO, UN, other multilaterals, WEF, DOH, pharma, medical, big media etc -- will keep using it. Perhaps until 2030, or 2050.
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In Feb 2021, WEF tweeted that lockdown was good, improving cities around the world, heal the planet. When there was public backlash, WEF removed their tweet.

Those lockdowns contributed to huge supply chain problems, high govt borrowings and endless subsidies, that contributed to high inflation. Now WEF is scared of high inflation and geopolitical wars.

"Catastrophic Outcomes": Davos Elite Worried About Global Volatility, Cost-Of-Living Crisis
TYLER DURDEN JAN 13, 2023
https://www.zerohedge.com/geopolitical/catastrophic-outcomes-davos-elite-worried-about-global-volatility-cost-living-crisis

World Economic Forum Says ‘Lockdowns Are Quietly Improving Cities Around The World’
MICHAEL GINSBERG February 26, 2021
https://dailycaller.com/2021/02/26/world-economic-forum-lockdowns-are-quietly-improving-cities-world/

The WEF Global risks report 2023, endless crisis narratives. Inflation crisis, climate crisis, health crisis, security crisis,...

Endless crisis narratives imply endless government intervention, taxation, regulations, restrictions, in partnership with crony or wifey big businesses.
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See also:
Covid 75, Vax effects -- myocarditis, thrombosis, pericarditis... September 05, 2022
Covid 76, Covid vax effects on fertility, September 08, 2022
Covid 77, Twitter censorship and Elon Musk's TW Files, December 28, 2022.

Saturday, January 07, 2023

BWorld 577, Inflation 2022 and major contributors

* My column in BusinessWorld last January 5.
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The Philippine Statistics Authority (PSA) reported that the December 2022 inflation rate was 8.1%. It is the peak rate for 2022 and also the highest since 2008.

As of today, only a few countries in the top 50 largest economies in the world have reported their December 2022 inflation data. In Table 1, I list five countries each in Europe and Asia. Europe has been severely affected mainly because of high energy prices. Germany, the largest economy in Europe and fourth largest in the world, experienced its highest inflation in 70 years. Switzerland, which has the lowest inflation in Europe, still experienced 29-years high price increases.

It seems that the series of interest rate hikes by central banks and the monetary authorities of many governments have succeeded in causing demand destruction, where consumers were forced to cut down their spending on many items, which pulled down overall inflation rates in the latter months of 2022.

In the Philippines, price hikes in transportation — oil, fares, vehicle rentals, etc. — were the main contributor to overall high inflation in 2022. It was the reverse in 2019 where transport was a major contributor — only 1% — to low inflation that year (See Table 2).

The important policy implication here is that taxes and costs that contribute to high oil and transport prices must decline, or at least remain stable and not increased further. High oil taxes and costs mean high operating cost for tractors, harvesters, trucks, and irrigation pumps. Which in turn leads to high food prices.
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Creative destruction and Joseph Schumpeter

Directly or indirectly destroy/ignore the old to allow space and new resources for the new. The essence of free enterprise capitalism. Some useful materials:

1. Creative Destruction: Out With the Old, In With the New
By CAROL M. KOPP June 23, 2021
Reviewed by MICHAEL J BOYLE
https://www.investopedia.com/terms/c/creativedestruction.asp

KEY TAKEAWAYS

* Creative destruction describes the deliberate dismantling of established processes in order to make way for improved methods of production.

* Creative destruction is most often used to describe disruptive technologies such as the railroads or, in our own time, the internet.

* The term was coined in the early 1940s by economist Joseph Schumpeter, who observed real-life examples of creative destruction, such as Henry Ford’s assembly line.

2. Creative Destruction
By Richard Alm and W. Michael Cox
https://www.econlib.org/library/Enc/CreativeDestruction.html

Attempts to save jobs almost always backfire. Instead of going out of business, inefficient producers hang on, at a high cost to consumers or taxpayers. The tinkering shortcircuits market signals that shift resources to emerging industries. It saps the incentives to introduce new products and production methods, leading to stagnation, layoffs, and bankruptcies. The ironic point of Schumpeter’s iconic phrase is this: societies that try to reap the gain of creative destruction without the pain find themselves enduring the pain but not the gain.

3. Creative Destruction: Why It Matters And How To Implement It
Kate VitasekContributor. May 26, 2022
https://www.forbes.com/sites/katevitasek/2022/05/26/creative-destruction-why-it-matters-and-how-to-implement-it/?sh=7e139b4f6e3d

4. Capitalism, Socialism, and Democracy: Third Edition (Harper Perennial Modern Thought) Paperback – November 4, 2008
by Joseph A. Schumpeter
https://www.amazon.com/Capitalism-Socialism-Democracy-Perennial-Thought/dp/0061561614

"The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism." (p. 83)

Friday, January 06, 2023

BWorld 576, Top 10 trade and investment stories of 2022

* My article in BusinessWorld, Jan. 2, 2023.
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Here is this column’s assessment of the important trade and investment stories of the past year, five global and five national.

1. Big recovery in global merchandise trade by nearly $4 trillion in 2021 over 2020

The World Trade Organization (WTO) in November released its flagship annual publication, the World Trade Statistical Review 2022. Global merchandise trade reached $22.3 trillion in 2021, led by China, the US, Germany, the Netherlands and Japan. Economies that experienced big expansion in exports from 2011 to 2021 were China, Hong Kong and Taiwan (2x), and Vietnam (4.8x).

2. Mild expansion in global exports by about $2.4 trillion in 2022

In the online statistics of WTO, the first three quarters of 2022 are available and the trend shows potential global merchandise exports of $24.7 trillion for the full year, or a mild expansion of $2.4 trillion over the previous year. US exports were estimated to have hit $2 trillion for the first time, special credit to its huge LNG exports to Europe. And despite extensive sanctions against Russia, its exports were projected to have reached about $550 billion in 2022 (Table 1).

3. Global foreign direct investment (FDI) inward and outward stocks doubled from 2011 to 2021

The United Nations Conference on Trade and Development (UNCTAD) in June released the World Investment Report 2022. FDI inward stock — net of inflows minus outflows through time — reached $45.4 trillion in 2021. The US remained the No. 1 destination of FDIs and was the main exporter of FDI measured in outward stocks.

4. China, Japan, South Korea and Taiwan were net exporters of capital, while India and ASEAN countries remained net importers

Japan FDI instock was only $257 billion in 2021 but its outstock was $1.983 trillion. China and Hong Kong had a combined FDI instock of $4.1 trillion in 2021, while their combined FDI outstock was $4.7 trillion (Table 2).

5. Global illicit trade was estimated at more than $2 trillion a year

The number is an UNCTAD estimate. There is a huge diversion in commerce from legal and registered products to illegal ones, leading to lower tax revenues for governments that led them to raise taxes elsewhere. In September, it held the second UNCTAD Illicit Trade Forum in Geneva, in partnership with the Transnational Alliance to Combat Illicit Trade (TRACIT). The goal was to highlight initiatives and cooperation to fight this criminal activity.

6. Philippines remained less attractive in merchandise exports and as an investment destination

The Philippines was ranked the 12th largest population in the world but only 38th in GDP size and 46th in merchandise exports. It was also far below in FDI inward stocks and tourism visitors. Our merchandise exports in 2021 hit only $64 billion, nearly a fourth of Malaysia and Thailand and nearly a fifth of Vietnam. While our geographic isolation (it can be reached only by plane or boat) is a factor, other factors include our overall poor infrastructure and low power generation.

7. High incidence of illicit trade especially in tobacco

See a recent report in BusinessWorld, “Gov’t losing P250B in revenues due to illicit trade” (Dec. 14) quoting Jesus L. Arranza, the chairman of both Fight IT (Illicit Trade) and the Federation of Philippine Industries. He estimates that cigarette smuggling alone deprives the government of P24.7 billion a year in taxes. His estimate is not far from the estimates of Albay Rep. Joey Salceda of P30 billion a year in tax revenue losses, of former Party-list Rep. Koko Nograles of P31 billion a year (P26 billion to P60 billion a year), and this column’s estimate of P36 billion to P49 billon a year (see “Inflation and Illicit trade,” Nov. 7).

8. See-saw in cement liberalization and protectionism

See these reports in BusinessWorld: “Petition to extend safeguard measures for cement rejected” (Nov. 9), “Cement industry says ‘premature’ to let safeguard measures vs imports expire” (Oct. 10), “DTI to impose anti-dumping duties on cement imports from Vietnam for 5 years” (Dec. 22). This column consistently argues for free trade. Consumers and businesses should be free to choose where to buy and get products like cement for their needs. Expensive cement and steel often leads to people cutting costs for their houses, which can be easily damaged by strong earthquakes or storms, which can lead to loss of lives and properties.

9. Higher investor confidence in the Philippines

This was reported in at least four articles in BusinessWorld last month: “Nearly 800 IT-BPM projects endorsed to BoI” (Dec. 19), “PEZA-approved investment pledges surge this year” (Dec. 21), “BoI approves P729-billion investments in 2022” (Dec. 22), “‘Keen’ European interest in shipping after foreign ownership cap removed” (Dec. 26).

10. The worst is over and the best is yet to come

That is the title and assessment of a recent statement from Finance Secretary Benjamin Diokno, also reported as “‘Better years’ ahead for PHL — Diokno” (BusinessWorld, Dec. 29). Among the reasons for his optimism which this column agrees with are: (1) the early approval of the 2023 national budget, faster rollout of important infrastructure projects, (2) adoption of the first-ever Medium-Term Fiscal Framework, FY 2023-2028 and the Philippine Development Plan 2023-2028, which unite executive and legislative fiscal and economic priorities, and (3) legislation for more economic liberalization in the Foreign Investment Act, Retail Trade Liberalization and Public Service Act.

I must add that some changes in budget priorities must be made. In the past and in the recently signed General Appropriations Act of 2023, priorities of the annual budget are not on productivity-enhancing physical infrastructure but on social sector subsidies and freebies, and an ever-rising spending and entitlement by the armed sectors including the luxurious military and uniformed personnel pension: P124.4 billion in 2021, P153.1 billion in 2022 and P176.7 billion in pension and gratuity fund in 2023 (Table 3).

Having free education from elementary to university, free healthcare, free monthly cash, free irrigation, free bus rides in Metro Manila, etc. are formula for people to be more state-dependent and not self-reliant. A bloated police and military with bloated pension funds taken not from their monthly contribution but from taxpayers is additional recipe for endless borrowings, high interest payment, a bad business environment when new taxes must be imposed to pay those huge public debt.

Bienvenido S. Oplas, Jr. is the president of Bienvenido Oplas, Jr. Research Consultancy Services, and Minimal Government Thinkers.
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See also:
BWorld 573, Ten economic issues to watch, December 27, 2022
BWorld 574, Top 10 energy stories/ideas 2022, December 28, 2022
BWorld 575, The Top 10 fiscal and monetary news stories of 2022, December 31, 2022.

Pol. Ideology 85, Austrian Economics and marginal utility

I have read some books of Friedrich Hayek and Ludwig von Mises, great minds. There are "Hayek" series in this blog, latest is Hayek 12: Friedrich Hayek's 20th Death Anniversary (March 26, 2012).

A good brief discussion from

Austrian School of Economics: Founders, Key Ideas, and Insights
By MARY HALL Updated July 28, 2021
Reviewed by ROBERT C. KELLY
https://www.investopedia.com/articles/economics/09/austrian-school-of-economics.asp

KEY TAKEAWAYS

Carl Menger, an Austrian economist who wrote Principles of Economics in 1871, is considered by many to be the founder of the Austrian school of economics.

The key ideas of the Austrian school have evolved over the years through the input of various economists.

Other than Carl Menger, the Austrian school also includes names like Ludwig von Mises, Eugen von Bohm-Bawerk, and Friedrich Hayek.

The Austrian school uses logic of a priori thinking to discover economic laws of universal application, whereas other mainstream schools of economics make use of data and mathematical models.

The early concepts of the Austrian school contributed significantly to the theory of diminishing marginal utility.
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And a longer discussion,

Austrian School of Economics
By Peter J. Boettke
https://www.econlib.org/library/Enc/AustrianSchoolofEconomics.html

The Science of Economics

Proposition 1: Only individuals choose.

Proposition 2: The study of the market order is fundamentally about exchange behavior and the institutions within which exchanges take place.

Proposition 3: The “facts” of the social sciences are what people believe and think.

Microeconomics

Proposition 4: Utility and costs are subjective.

Proposition 5: The price system economizes on the information that people need to process in making their decisions.

Proposition 6: Private property in the means of production is a necessary condition for rational economic calculation.

Proposition 7: The competitive market is a process of entrepreneurial discovery.

Macroeconomics

Proposition 8: Money is nonneutral.

Proposition 9: The capital structure consists of heterogeneous goods that have multispecific uses that must be aligned.

Proposition 10: Social institutions often are the result of human action, but not of human design.
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These are the key thought leaders of Austrian economics.

A good short video,

What is Austrian Economics?
https://www.youtube.com/watch?v=MxK8FKU3BPs

Opposed to Marxism... the use of economic theories to justify government intervention in the economy.

The Methodology of the Austrian School of Economics
https://www.youtube.com/watch?v=gzH8KVAEkBU
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See also:
Pol Ideology 82, Reflections of a former Marxist on property, December 18, 2021
Pol. Ideology 83, The end of liberalism and return of militarist-protectionism? April 12, 2022
Pol. Ideology 84, Capitalism and prosperity, June 28, 2022.

Government and Taxes

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