The government would need to borrow additional money from creditors should taxes on petroleum products are suspended, the Department of Finance (DOF) warned.
Finance Secretary Carlos G. Dominguez III said suspending fuel excise taxes will only provide temporary and minimal relief to consumers, but entails detrimental impact on government’s fiscal position.
Dominguez noted that suspending oil levies would bring down prices of goods by only 0.03 percentage points in 2022, but it will hamper the economic recovery and result in slower growth by 0.4 percentage point in the short run and 0.03 percentage point in the long haul.
Dominguez said the estimated loss of P105.9 billion in excise tax and value-addd tax (VAT) collections this year alone already accounts for the possible impact of the Ukraine-Russia conflict on the volume of imported petroleum products.
From 2022 to 2032, the government stands to lose P1.76 trillion worth of excise revenues, which could be better spent on more productive sectors of the economy.
"Any reduction in our revenues will require us to borrow more to continue to fund government programs,” he said.
Dominguez said the projected P147 billion to be collected from the fuel excise tax and the VAT on oil imports this year is already allocated in the 2022 national budget, which means such revenues have been allotted for spending on government projects and programs.
These include the job-generating projects under the "Build, Build, Build" infrastructure modernization program, and the salaries of government employees, such as public school teachers, soldiers and members of the Philippine National Police (PNP), Dominguez said.
“Without these revenues, we will be required to borrow more to fund government programs,” he said.
“Hence, the proposal will be detrimental to our fiscal position. The foregone revenues will lead to an increase in our country’s deficit in 2022, from 7.7 percent to 8.2 percent of GDP, if the same level of government spending will be maintained to support economic recovery,” he added.
The budget deficit, which is the difference between revenues and expenditures, represents the amount the government needs to cover with additional borrowings.
Increased borrowings, in turn, will push up the debt-to-GDP ratio in 2022, from a projected 60.9 percent of GDP, to 61.4 percent of GDP.
“The effect of additional borrowings will be even greater in future years as we start to pay interest. The situation is compounded by the rise in global interest rates. Higher borrowings now will further increase our interest payments and deficit in the future,” Dominguez explained.
Dominguez said DOF computations show that higher VAT collections from rising fuel prices are sufficient to cover the targeted subsidies to be given to vulnerable sectors of the economy.
He said that if the per-barrel cost of crude oil in the world market hits a high of US$130, this would correspond to about P 37.5 billion in additional VAT collections.
Dominguez said that with global crude prices at US$ 110 per barrel (as of Tuesday night), the DOF estimates to collect P26 billion in additional VAT collections.
“These are much needed revenues that we recommend to be used as a funding source to support and provide subsidies to the sectors most affected,” he said.
The Duterte Cabinet’s Economic Development Cluster (EDC), which Dominguez heads, is recommending the distribution of cash grants to the bottom 50 percent of all Filipino households, which will benefit around 12.4 million families or 74.7 million Filipinos.
“The beneficiaries will be based on the updated list of the Department of Social Welfare and Development (DSWD) and will be similar to the unconditional cash transfers (UCTs) provided under the TRAIN Law,” he said.
Dominguez said the budget for the UCTs will amount to P33.1 billion based on a proposed P200-per- month grant or P2,400 per year to be given to each qualified household.
The EDC has also recommended doubling the budget for fuel subsidies from the current P2.5 billion approved by the President to P5 billion to cushion the impact of the oil price hike on over 377,000 qualified public utility vehicle (PUV) drivers in the transport sector.
It has also proposed providing additional fuel vouchers for farmers and fisherfolk by increasing the budget from P500 million to P1.1 billion to help mitigate the impact of higher fuel prices on production and transport costs of farm and fishery products.
The first tranche of this amount will be released in March and the second tranche will be given in April.