NOTED economist and former National Economic Development Authority director general Solita “Winnie” Monsod has had harsh words for the government’s apparent plan to suspend fuel excise taxes to mitigate high costs resulting from the Iran war. Suspending the tax, Monsod said in an interview earlier this week, would be “stupid” and “kagaguhan” (foolish), because it benefits rich as well as poor Filipinos. As an alternative, Monsod is pushing for the imposition of a wealth tax on the richest Filipinos, which would help to fund direct cash assistance to the poor.
As capable as Winnie Monsod is as an economist, her judgment is clouded by populism and a bit of class prejudice; an irony, as some social media users have pointed out, as she herself is perceived to be rather well-off. The suspension of the fuel excise tax is, as we have pointed out in previous commentary, somewhat problematic, but Monsod’s negative characterization of it is an exaggeration. The concept of a wealth tax, while a nice ideal, is even more problematic, and would be completely unworkable at this stage of the Philippines’ political and governance development.
In an interview with journalist Pinky Webb on the Bilyonaryo news channel on Monday, Monsod said, “That (the excise tax suspension) is a stupid suggestion because that tax is an aggressive tax, the ones who get hurt most are the poor. When you suspend the excise tax on oil, you’re helping the rich also, ano bang kagaguhan ’yan (what kind of foolishness is that).”
Monsod’s alternative suggestion is to forego the suspension of the fuel excise tax — the implication being that it should not benefit a class of the population that Monsod deems undeserving — and instead impose a 3-percent “wealth tax” on Filipinos with a net worth of P3 billion or more. In her interview, she singled out the top 50 richest Filipinos, although in reality the group that would be covered by the P3-billion threshold would be quite a bit larger. The rationale behind this is that not cutting the fuel tax would preserve the government’s revenue from that — estimated to be about P136 billion for 2026 — and that combined with the revenues from the wealth tax could easily fund “targeted interventions” for the poor, such as “unconditional cash transfers” and other relief measures.
Taxes are usually described in economic terms as either progressive or regressive, so it is unclear what Monsod means by describing the fuel excise tax as “aggressive.” Taxes on spending, such as value-added tax, excise taxes, luxury taxes and “sin” taxes, are always regressive, in the sense that a lower-income person will spend proportionally more of his income to purchase a given commodity than a higher-income person will. However, the fuel excise tax has only a mild regressive effect, because it is a flat per-unit rate; for example, P6 per liter for diesel fuel. The proportional benefit of suspending the tax is exactly the same whether one buys 2 liters of fuel or 200, and because lower-income customers tend to buy much less, the regressive effect is essentially canceled out.
Nevertheless, Monsod is correct in pointing out that the sacrifice of government revenue from the fuel tax suspension is not ideal. As we have previously noted, the positive effect is modest at best and decreases as fuel prices increase, to the extent that a level would probably be reached where the benefit to consumers would be greatly outweighed by the cost of foregone tax revenues.
As for the wealth tax idea, that is a complete nonstarter at this point. Most countries that have at some point implemented some form of wealth tax have later repealed them, having found them too difficult to administer and generating very low amounts of revenue for the government. A 2023 report by the Organization for Economic Co-operation and Development (OECD) on wealth taxes noted that the number of OECD members with a wealth tax fell from 12 in 1990 to just four in 2017. Of three countries in Europe that still have wealth taxes of the sort proposed by Monsod — Spain, Switzerland and Norway — the contribution of those taxes to overall government revenue collections is small; 4.3 percent of total tax collections in Switzerland, 1.5 percent in Norway and 0.6 percent in Spain.
It goes without saying that all of these countries have much stronger and more efficient institutions than the Philippines. Here, it would very likely cost the government more to administer the tax than it could make up in additional revenue, without extensive reform and strengthening of institutions and processes.