AS expected, all of the Philippines’ fuel suppliers sharply increased prices on Tuesday, March 10, driven by skyrocketing oil prices caused by the ongoing war in the Middle East. Although US President Donald Trump in a televised interview on Monday said the war was “very complete,” he was not at all convincing, and most expert observers expect the conflict to last at least several more weeks, perhaps even longer. Efforts here in the Philippines to ease the impact of rising fuel prices will therefore need to be more than short-term temporary measures.
The Department of Energy (DOE) was able to convince the oil companies to impose the increased prices in a staggered fashion, a directive that the DOE has described as a measure that reduces price shock for consumers. This action seems to be more performative window-dressing than anything else, because the big price increase this week is only spread across a few days; the suppliers will roll out the increase in several installments between March 10 and March 16.
For ordinary consumers, the scheme may indeed provide some small relief, but individual private car or motorcycle drivers are not the biggest factor, economically speaking. Transport companies, those that provide rides for commuters and more significantly, those that transport goods, set their fares and shipping rates based on fuel prices, and will find it difficult to manage prices changing several times over the course of a couple of days. Thus, they are more likely to roll the total fuel price increase into their rates at one time, eliminating any advantage from the “staggered” increase for their customers.
Elsewhere, government units at all levels as well as schools, other institutions, and many private companies have implemented a variety of energy conservation measures, as well as shifting their operations to a four-day work week. These are sensible measures, and something that every business and household should be doing to whatever extent is feasible. However, we will have to accept that such measures will inevitably reduce productivity, which is going to be reflected in reduced revenues for businesses, reduced earnings for some workers, and a deceleration in overall economic growth.
As measures such as hybrid work schedules, reductions in fuel use for travel and equipment operations, and energy-saving practices in offices and facilities are the most likely to become permanent practices even after the current crisis ends, the government needs to account for slower economic activity in its planning. This does not necessarily have to be negative development for the country, but economic targets and planning assumptions should be reviewed and revised.
Finally, there is an effort under way in Congress to pass a law authorizing the president to reduce or suspend the fuel excise tax when oil prices are high. This is something that should have been clearly written into the fuel excise tax law in the first place when it was crafted several years ago, although we are not confident that the frantic scramble lawmakers are now experiencing is going to be a lesson to them to be more thorough in their work.
Fuel excise taxes are a popular sore point among the public, but the actual impact removing them would have is modest at best. To illustrate, we’ll use the lowest-priced diesel listed as of today, March 11, as an example; this is available at Chevron for an average price (what the DoE calls the common pump price) of P65.50 per liter. Removing the P6 per liter excise tax would reduce the price by P6.72, since excise tax is also subject to the value-added tax, which is a reduction of about 11 percent. However, that P6.72 is the limit of the reduction. It will not go higher as prices increase, and so within a week or two, the offset it provides will be inconsequential.
At the same time, the government will be taking a massive blow to its revenues. It has been estimated that if the fuel excise tax is removed and not restored, the move will cost the government P136 billion in lost revenue by the end of 2026. The public perception is that it is a reasonable expense for the government to incur in order to provide some relief from fuel prices. However, it has longer-term negative implications. It is a cost to the government that is being incurred for a relief measure that will rapidly decline in effectiveness, and it takes money away from the government that might otherwise be used for other subsidies and support measures.
