High prices, poor response

When it comes to responding to the ongoing Gulf crisis, the country is the least prepared, as reflected in fuel pump prices.

Singapore has no oil resources, but it has refineries and it serves as a trading hub for oil, so it faces fewer price or supply problems.

Other neighbors, such as Cambodia, also face challenges, but their oil consumption is lower because they are smaller countries.

Republic Act 12316 gave President Ferdinand Marcos Jr. the authority to suspend the fuel excise tax, but this will take effect around mid-April, after a 15-day gap that could have been avoided given the crisis.

Currently, the excise tax is about P6 per liter for diesel and P10 per liter for gasoline, which are amounts that decrease with each weekly price increase.

At the current average diesel price of over P130 per liter in the National Capital Region, even after subtracting P6, it remains high and the crisis is far from over. There are even projections that crude oil could reach $200 per barrel.

The effect of removing the excise tax becomes smaller over time. At the same time, economists said the government would lose hundreds of billions in revenue, funds that could otherwise be used for targeted aid to the poor, jeepney drivers, farmers and others.

Many economists advise against the policy and instead favor targeted subsidies.

A study recently released by University of the Philippines School of Economics (UPSE) professor JC Punongbayan indicated that suspending the fuel excise tax benefits the rich more than the poor.

The study showed that as families become wealthier, their consumption of gasoline and diesel increases.

For poorer households, the impact is more indirect, through rising food prices, transport costs, and so on, the study averred.

According to the study, suspending the excise tax is considered a “blunt instrument” as it benefits the rich while depriving the government of funds for subsidies.

Middle-class households that own just one car often finance it, use it for daily needs and derive minimal benefit from the tax suspension.

“The revenue loss is significant, and the benefit is limited,” Punongbayan stated.

The crisis exposed the country’s vulnerability to external factors due to a lack of long-term planning, particularly in the energy transition.

Punongbayan said that, for a country blessed with natural resources, it remains heavily dependent on oil even as renewable energy like solar is becoming cheaper.

A forward-looking step would be for the country to invest heavily in indigenous fuels such as RE and natural gas, since developing these projects would require long-term planning.

At present, targeted subsidies remain the most viable immediate solution.

A wealth tax, as proposed by some economic experts, may sound appealing in theory, but it is not a practical short-term measure. It requires legislation and realistically, lawmakers may be reluctant to pass it — especially given that many are themselves among the wealthy.

Even if enacted, enforcement would pose a significant challenge. High net-worth individuals can move assets abroad or employ legal strategies to minimize or avoid being taxed.

In countries such as Switzerland and the Scandinavian nations, wealth taxes function effectively due to strong institutions and robust enforcement mechanisms.

In the Philippines, however, where enforcement remains weak, implementing such measures would remain an elusive goal.