Inflation jam

Dindo Manhit, President of the Stratbase ADR Institute

It is said that it takes at least five years to see either the benefits and/or the ill effects of a particular legislation. However, now that we are in an inflation jam, it only took six months to see the very negative effects from the imposition of more taxes.

In January 2018, the inflation rate was moderate at 3.4% compared to the low 2.5% a year earlier. To date, inflation has already averaged at 5%. Since May, the Central Bank has raised interest rates four times to cushion the increase in inflation and oil prices.

While inflation within NCR eased down to 6.3% compared to 7% in August, the increase in prices was higher in Areas Outside NCR (AONCR), which stood at 6.8%, compared to 6.2% in August. Compared to September last year, NCR inflation was at 4.4% while AONCR inflation was at 2.6%. The highest annual inflation registered at 10.1 percent in Region V (Bicol Region) while the lowest was at 4.5% in Region III (Central Luzon).

The reasons behind inflation are multi-faceted and driven by both domestic and international economic conditions and processes. The long-standing reasons, which are also way beyond the control of the national government, include high domestic petroleum prices, the continued weakening of the Philippine peso, and the rise in global prices.

In terms of the domestic realm, the rice crisis is obviously a factor because rice still stands as the staple food for millions of Filipinos. As a rule of thumb, shortage in supply jacks up market prices and the poor are the most affected with the incredible increase in the price of rice.

Another factor is corruption. A country with high corruption increases inflation rates. According to Transparency International (2018), the Philippines’ rank dropped from 95th out of 168 countries in 2015, 101st out of 176 countries in 2016, to 111th out of 180 countries in 2017. Corruption provides a positive environment for inflation to worsen. In turn, continued high inflation would encourage illicit trade activities so as to circumvent taxes and sell cheaper goods in the underground market.

Adding insult to injury, the imposition of more taxes has surely driven up prices. As the heavily weighted goods and non-alcoholic beverages are subject to more taxes, the population is deemed to suffer more. As a result, the increase in prices is evident in fish, the operation of personal transport, rice, electricity and petroleum products. Another impact of the imposition of more taxes is the proliferation and intensification of illegal activities as well, such as smuggling and cartel operations.

Given the current predicament, the Duterte administration is even bent on approving more tax proposals. Despite the warning of several legislators and various non-government organizations about the need to review TRAIN (Comprehensive Tax Reform Package), they were branded as fools and irresponsible. On this note, President Duterte insisted and emphasized in his 2018 SONA to support his Build, Build, Build Program by passing more tax laws by the end of the year.

To pass on the logic of more taxation to beef up his infrastructure program is a very myopic argument. Our country already has the highest tax rates in Asia. The imposition of more taxes, for this matter, further degrades our competitiveness rating and performance. The burden of taxation and government infrastructure programs is passed on to the poor population, who are the most affected with the increase of prices.

Onto his third year and mid-term period in office, it would be a big step for PRRD to finally listen to the people by fine-tuning his programs with the public’s clamor. A PULSE Asia poll, conducted in June this year just before the SONA, disclosed that the top 5 concerns for Filipinos included the creation of more jobs (56%), controlling inflation (52%), increasing the wages of workers (48%) and poverty reduction (33%). The fight against illegal drugs (26%) and corruption (16%) ranked 6th and 7th respectively.

It is therefore imperative to focus on the enduring solution of job creation instead of more taxation. While inflation is a fact of life, people should have enough purchasing power to go through their everyday lives. The achievement of the pronounced employment-led growth is the key to provide the working population the means to exist and not simply to subsist. As long as people have the power to consume, inflation would not be an obstacle in promoting effective demand. The ironic situation we have now is that the very people who voted President Duterte to power, hoping that change is coming to alleviate their poverty, are now suffering the brunt of this economic mess. If inflation continues to rise, the people will strike back with their votes.

 

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