‘January inflation not caused by TRAIN’
An organization of former government officials and economists said yesterday it agrees with the assessment of the Department of Finance (DOF) that the recently enacted Tax Reform for Acceleration and Inclusion (TRAIN) law did not cause the inflation uptick last January.
In a statement, the Foundation for Economic Freedom (FEF) said the recent surge in inflation was caused primarily by increase in food prices, particularly fish and vegetables, and higher oil prices.
Inflation settled at four percent in January, the highest since October 2014. This is also higher than the 3.3 percent posted last December and 2.7 percent in January last year.
According to economist Cielito Habito and FEF fellow Romeo Bernardo, fish and vegetable prices were affected by weather-related incidents and the lean season in the fishing industry.
They also cited international oil prices, which rose 19.6 percent, and the depreciation of the peso, which weakened by 1.5 percent in the past year.
Habito and Bernardo also agreed that better enforcement of tax laws, particularly on the excise taxes on tobacco products, also drove the increase in inflation, as proven by the higher taxes paid by cigarette producer Mighty Corp.
“Likewise, FEF believes that TRAIN has safeguards in place to mitigate any inflationary effects,” they said.
These include cash transfer programs for the 10 million poorest households as provided under the law.
In addition, FEF said TRAIN captures informal sectors into the tax net, which then broadens the tax base, reducing fiscal deficit and inflationary pressures.
The FEF said the projected increase in public investments for education, health and infrastructure, brought about by the incremental revenues under TRAIN, will also have a positive impact on the country’s economy and lift Filipinos out of poverty.
“Further, over the past long years of significant economic reforms, which achieved fiscal consolidation, the restructuring of the central bank and the creation of an independent central monetary authority, foreign exchange liberalization and flexible exchange rates, the Philippines today benefits from a monetary policy framework that gives monetary authorities effective tools to pursue inflation targeting to ensure that inflation and inflation expectations are properly anchored,” the FEF said.
The FEF said the Bangko Sentral ng Pilipinas (BSP) has the instruments to “anticipate any possible build-up of inflationary pressures from TRAIN beyond what is warranted from current inter-industry structure of the economy.”
Earlier, Department of Finance (DOF) undersecretary Karl Kendrick Chua said the TRAIN, particularly its provision adjusting excise taxes of oil and fuel, is expected to pull up inflation by about 0.7 percentage points, a level considered “minimal and manageable.”
Broken down, he said, TRAIN is expected to increase food inflation by 0.3 percentage points and transportation costs by 0.1 percentage points. Price increases of other commodities are also expected to accelerate by 0.3 percentage points.
The DOF said the government has also started this quarter the rollout of the unconditional cash transfer program for the 10 million poorest households in the country to help cushion the impact of the tax reform measure on the prices of commodities.