The Department of Finance (DOF) maintained that the government should continue the more targeted approach of fuel subsidy as it warns against bowing to pressure to suspend excise taxes on petroleum.

As the incoming Marcos administration is coming under pressure from several parties to implement a fuel tax holiday, the DOF explained that such proposal, if adopted, would only result in higher budget deficit and heavier debt burden.

According to the DOF, suspending excise taxes on fuel is not the “most efficient approach” to alleviate the conditions of sectors affected by skyrocketing gas prices.

“The better and more equitable way to address the impact of the increasing fuel prices is to provide swift and targeted support to the vulnerable sectors,” DOF said.

The government is currently rolling out fuel targeted subsidies amounting to P6.1 billion for the transport and agriculture sectors.

The finance department estimated that if excise taxes are suspended, it will reduce government revenues by P105.9 billion, equivalent to 0.5 percent of gross domestic product (GDP) in 2022.

Lower revenues will in turn increase the fiscal deficit and debt, which will potentially raise interest rates on government debt and reduce the "much-needed fiscal space” for funding crucial social and economic programs, DOF said.

“The suspension of the imposition of excise taxes on petroleum is also extremely regressive and primarily benefit higher-income households,” the DOF explained.

“We will just be subsidizing the top 10 percent of Filipino households who consume about 50 percent of total fuel consumption in 2022. This means that the larger financial benefits of the suspension will not go to the poor, but to higher income households,” it added.

Last March, 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.

"Any reduction in our revenues will require us to borrow more to continue to fund government programs,” Dominguez said.

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 said.