A respite for common folk hit by rising prices

AS of last July, the inflation rate was 5.7 percent, the highest in five years, according to the Philippine Statistical Authority. Socio-economic Planning Secretary Ernesto Pernia said the government expects the inflation to peak in the third quarter of this year and taper off by October.

By the government’s own estimate, we can expect consumer prices to continue rising until next month – and that is the optimistic estimate that may not be shared by many economists. Because TRAIN 1 – the government’s major tax program that went into effect at the start of this year – is about to be followed by TRAIN 2.

The government billed TRAIN 1 as a way to lower the income taxes of ordinary employees from 31 to 25 percent. This was widely welcomed, for 31 percent was obviously unfair to ordinary employees; it was the same tax rate being paid by millionaires.

But TRAIN 1 also provided for several ways to raise government revenue, including imposing excise taxes on diesel and other fuels, which raised transportation costs for all consumer goods as well as passenger fares. It raised the tax on coal, which was good for the environment, but may soon raise electric power bills as coal is still the principal fuel for our electric power plants. It increased the tax on sweetened beverages, which was welcomed by health officials as sugar causes obesity, but it reduced the business of sari-sari store owners.

Somehow, these various taxes, in combination with rising global oil prices and the drop in the value of the Philippine peso, caused consumer prices to rise – inflation, to use the term of economists. Pernia expects the prices to keep rising until September, and taper off by October, but that sounds more like a hope than an expectation.

And now comes TRAIN 2, which the government bills as lowering corporate income taxes from 30 percent to 25 percent. As in TRAIN 1, the government seeks to get back lost tax revenue by ending scores of incentives to companies that it has given over the years. There are today about 315 laws granting these protection incentives and some of them really need to be ended as 57 percent are no longer in the infancy stage.

But the other 43 percent are companies, many of them located in our free-trade zones, providing employment to many Filipino workers and producing consumer and export products that boost the national economy. These are foreign firms that could easily move to other countries if they now lose their present tax incentives.

In the House of Representatives, the Committee on Ways and Means has already approved TRAIN 2 in principle, but in the Senate , the bill is not a priority as there are fears that it may further boost the ongoing inflation.

We can understand the administration’s need to raise revenues to fund the massive infrastructure program it plans for the next four years, “Build, Build, Build.” It has also lost in a Supreme Court decision which requires it to give billions of pesos more to local governments as part of their Internal Revenue Allotments. And now there is the new Bangsamoro Autonomous Region of Muslim Mindanao which will need considerable funding to launch.

There are thus so many things to consider. But we hope the national government’s economic planners will also give due consideration to the common ordinary Filipinos who have already been hit by TRAIN 1 and may need a respite before they are again affected by TRAIN 2.