What fueled TRAIN law price spikes

We had the opportunity to have Department of Finance (DOF) Undersecretary Karl Kendrick Chua and Light Rail Management Corp. (LRMC) president and chief executive officer (CEO) Jose “Ping” Alfonso as featured guests in our Kapihan

sa Manila Bay last Wednesday at Café Adriatico in Remedios Circle in Malate.

It was a timely topic to discuss again the controversial Tax Reforms Acceleration and Inclusion Act, or TRAIN law for short, a day after announcement by LRMC of their petition to raise fares for Light Rail Transit (LRT)-1. The economic managers of President Rodrigo Duterte have circled the wagon to defend the TRAIN law being blamed for having pushed up prices of basic goods and services.

The LRT fare hike, of course, has nothing to do with the TRAIN law since the latter is not about train services.

It is just that TRAIN is an acronym coined by Albay Rep. Joey Salceda, the brains behind the DOF-backed tax reform package. Regarded as the resident economist of the 17th Congress, Salceda christened the proposed tax reform package to a train because the trains of the Bicol Express obviously inspired him.

In our Kapihan sa Manila Bay news forum, Alfonso announced to the public the Light Rail Transit Authority (LRTA) will conduct a public hearing on July 11 on their P5 to P7 fare hike petition. The present fare of the end-to-end trip of the LRT-1 from Roosevelt station in Quezon City up to Baclaran station in Pasay City would cost P30 per passenger. This was the last fare hike that took effect in January 2015.

This fare adjustment has long been overdue, he cited, under a concession agreement with the government that allows the LRMC as private operator of the LRT-1 subject to approval of the LRTA as its regulator.

In August 2016, a fare hike was supposed to be implemented for the LRT-1 but was deferred purportedly to find other “options,” including government subsidy to cushion the fare difference for Metro Manila passengers. And since this is a subsidy, this is passed on to all of us taxpayers to pay to keep LRT-1 rolling and operational in tip-top shape.

Thus, Alfonso justified the LRT-1 fare hike petition as an equitable option “to reflect the true cost” of operations of its private operator (LRMC) rather than for the government to absorb it (through subsidy) as is happening now.

The LRT-1 runs through a 20-kilometer overhead rail track uninterrupted unlike its counterpart Metro Rail Transit (MRT-3) after the government practically took over its operations.

For the past 30 years in operation, LRT-1 is one of the legacy infrastructure put up during the Marcos administration. The LRMC acquired its concession to run and operate LRT-1 in September 2015 and since then, according to Alfonso, they have poured as much as P7.5 billion to improve the services of LRT-1 to its 500,000 commuters who ride the overhead rail system everyday.

And soon, Alfonso disclosed, LRT-1 will be extended all the way to Cavite with an additional 20-kilometer overhead rail track for additional 300,000 passengers from the south.

While LRT is a popular ride for many commuters avoiding monstrous jams in Metro Manila, many politicians ride on the growing unpopularity of the TRAIN law.

Contrary to populist sentiments, Chua cited the need to implement the TRAIN law following calls to suspend it amid the spiral of prices of rice, refined oil products, and other basic goods and services. Ironically, the calls to suspend the TRAIN law, specifically on the refined crude oil products, were made by leaders and members of the 17th Congress who approved it into law.

Understandably, these bleeding hearts in Congress have to protect their hides in the upcoming May 2019 elections when Filipino voters could chop off their heads for making their lives more difficult.

Chua hopes the next package of TRAIN-2 for the corporate income tax would also soon be passed into law by the 17th Congress. That might be problematic though as the third and last regular sessions resume a few months before the start of the election fever for May 2019. He hopes lawmakers would adopt the Department of Finance draft bill on TRAIN-2 that seeks, among other things, to rationalize tax incentives and provide level playing field for the business and investments community in the Philippines.

A technocrat by training, Chua explained they have carefully calculated that the TRAIN law benefits far outweigh the consequence of price upticks. In particular, he said the fixed salary workers now enjoy extra money when the TRAIN law lowered income tax subject to withholding tax in their monthly paychecks.

For this year alone, as much as P90 billion in additional revenues for the government coffers are estimated to come from TRAIN law. And as mandated by the same law, Chua stressed, as much as 70% of the TRAIN law collections this year was earmarked to finance the “Build, Build, Build” infrastructure program of the Duterte administration while the balance of 30% will fund the social services for conditional cash transfer (CCT), fuel vouchers to franchised jeepney operators and drivers, and senior citizen members of families registered in the CCT.

Chua conceded the TRAIN law resulted to increases in prices of basic commodities. But the Finance undersecretary clarified that the 4.6 percent inflation rate recorded in May was primarily pushed by external factors, some of which were not included in their projection. In particular, he pointed to the rice supply stock problem that troubled the National Food Authority (NFA).

The other two major inflationary factors, he added, were the upsurge in world crude oil prices and the peso-dollar exchange rate which, as of last monitoring, ranges at P53 to $1.

But from their review of the inflationary factors, the actual impact of TRAIN law was merely 0.4 percent. This, he noted, was lower than the projected 0.7 percent impact of the TRAIN law.

Chua reassured us these are merely “temporary” blips that fueled the price spikes. Hopefully, these should not derail the TRAIN law to its intended direction to fuel faster economic growth for the country.

The LRT fare hike has nothing to do with the TRAIN law since the latter is not about train services.