The growing clamor from labor groups for a wage hike in the face of the ongoing oil crisis, which has added upward pressure on inflation, is ill-timed, as small businesses will be forced to either lay off workers or completely shut down, economists warned Friday. 

Former Finance secretary and seasoned economist Margarito Teves believed that now is “not the right time” to approve a wage increase, noting that the “priority” should be placed on boosting food supply, increasing production, enhancing transportation, and expanding available government resources to mitigate inflation.

Any salary adjustment, he stressed, could be implemented “later on” after the economy and businesses recover from anticipated losses stemming from soaring oil prices linked to supply disruptions in the Middle East, where the Philippines imports about 98 percent of its crude oil. 

“Inflation is rising because of oil, and this is aggravated by the depreciation of the peso against the dollar,” Teves said partly in Filipino in a radio interview.

Labor groups staged a protest earlier this week to dismantle regional wage boards and demand an increase in the current minimum wage to help workers keep up with rising living, food, and transportation costs driven by the oil crisis. 

Professor Emmanuel Leyco, president and chief economist of Credit Rating and Investors Services Philippines Inc., however, echoed Teves’ concern. 

He warned that a wage increase at this time, amid higher operational costs brought about by the crisis, could disrupt businesses and force small enterprises to shut down, as they will not be able to cope with the higher wages.

“We cannot just say ‘raise the salary,’ and that's it. What about our brothers and sisters who are small business owners? They really can't afford it,” Leyco said in Filipino in the same radio program.

Last year, shortly after the House of Representatives approved the proposed P200 wage hike, the economic team of President Marcos Jr. warned that the wage increase could add about 2 percentage points to inflation and lead to higher production costs. 

The President had openly expressed reservations about supporting the proposed wage hike, citing its economic and inflationary implications and adverse effects on businesses, particularly micro, small, and medium enterprises (MSMEs). 

MSMEs are considered the backbone of the Philippine economy, accounting for about 63 to 65 percent of the country’s total employment. 

According to Leyco, the government should extend assistance to MSMEs to avert an economic downturn through credit subsidies, financial aid, or a tax holiday. 

Wage hike effect on unemployment rate

In January, the country’s unemployment rate rose to 2.96 million, or 5.8 percent, from 4.4 percent in December last year, the Philippine Statistics Authority reported. 

Leyco projected that the figure is likely to climb further due to higher operational costs stemming from the United States-Israeli war on Iran.

“The implication of that is that many small businesses will be forced to close because they cannot cope with the high prices of the things they need to provide services or produce products to sell in the market,” he explained. “Many small businesses will lay off employees or shut down completely.”

The Marcos administration previously targeted 5.5 percent economic growth, though the outcome fell short at 4.4 percent. Leyco projected that the growth rate could plummet further because the economy is at risk of slowing down due to the ongoing war. 

Teves, on the other hand, forecasted that aside from higher inflation and lower gross domestic product, the worsening crisis may push interest rates higher.

He warned that the prolonged US-Israeli war on Iran could also result in “stagflation,” which could adversely impact the economy and the government’s response. 

Because large sums of government resources are being diverted to social aid instead of funding crucial programs, such as food supply and production, Teves stressed that this imbalance can lead to stagnant economic growth while inflation persists. 

"That's why some economic managers are concerned about the excessive support for social programs because there will be less money for the so-called growth enhancement support for line agencies and the Department of Agriculture," he pointed out. 

Teves believed that the administration needs to budget its resources wisely so it can assist vulnerable sectors such as transport workers, farmers, and fisherfolk while keeping the economy running to ensure uninterrupted supply and services.

Excise tax suspension

Proposals granting the President the power to reduce or suspend the excise tax were already approved by Congress, and they’re already in the final stage of becoming law.

Teves proposed that there should first be a dry run, with the excise tax suspension lasting no more than three months, as the state of the conflict may still change and ease in the months ahead.

This follows concerns from the Department of Finance that suspending the excise tax could cost the government a staggering P121.4 billion in revenue loss, though the projected shortfall could reach as high as P136 billion if coupled with the proposed suspension of the value-added tax. The estimated revenue foregone covers only eight months, from May to December. 

According to Leyco, even if the conflict stopped earlier than expected, many oil firms in the Middle East had already been destroyed by airstrikes. This means that the oil crisis will not be automatically resolved with the end of the war, noting that six months is still insufficient before oil production and operations return to normal. 

Transport groups have lamented that fuel subsidies alone are not enough to keep their operations running, unless the excise tax and value-added tax are suspended ahead of expected spates of large oil price spikes.

Senator Risa Hontiveros asserted that a supplemental budget from Congress must complement the suspension of the excise tax to provide direct assistance to the sectors hardest hit by the oil crisis, including farmers and fisherfolk.

Initial projections pegged the supplemental budget at P52.8 billion, covering subsidies for repatriation, transportation, and agriculture for the whole year.