Notes on the Train, impact on inflation and the poor consumers ? updated as of 06/23/2018- Atty. Victorio Mario A. Dimagiba, AB, LLB, LLM, CESO VI, President, Laban Konsyumer Inc.
? Taxation is equitable when its burden falls on those better able to pay (p 221, Enrique M. Fernando, Constitution of the Philippines, 2nd edition).
? Excise tax is an example as it is imposed on consumption of goods.
? The effect on the cost of living is easily apparent. Even the necessities of life could be placed beyond the reach of the poor (p. 221, same as in item 1).
? Taxation is progressive when its rate goes up depending on the resources of the person affected. Again, the stress is the ability to pay. There should be no objection on principle if those benefitting most from the traditional role of the State in the maintenance of peace and order as well as the environment needed for stability in business and contractual relationship should bear a greater share of its cost (p. 222, same as in item 1).
? The Bangko Sentral ng Pilipinas (BSP) reported that consumer confidence index declined to 1.7 pct. in the 1st quarter 2018 from 9.5 pct. in the 4th quarter of 2017. The survey show that consumers spend more on electricity , food, nonalcoholic and alcoholic beverages , fuel, water, and transportation , indicating that inflationary pressures comes from these goods and services. Consumers in the survey answered higher prices of goods.
? For the 2nd quarter of 2018, the BSP Consumer Expectation Survey overall confidence index was 3.8 %, still lower than the 9.5 % 4th quarter of 2017.
? Most Filipino netizen said 94 % regard the Train Law not helpful to the economy. The survey said Train law is more of a burden to the Filipinos, it is anti poor and dismayed by the overall impact of the said law. Train law is beneficial only to government officials but is unfair to minimum wage earners (study by Research and Tech Lab (RTL). The DOF reported that the Php 10 Billion a month reduction from withholding tax means consumers have more to spend and a bonanza. The increase in take home pay is actually useless because of the increased price of some necessities.
? In the PSA March 2018 Summary Inflation Report Consumer Price Index, inflation at the national level accelerated to 4.3%. The details are :
-Food and Nonalcoholic ? 5.9 %
-Alcoholic and Tobacco ? 18.6%
? Housing, Water, electricity, gas, other fuels -2.9 %
-Furnishing, household equipment and routine maintainance-2.7%
-Health -2.4 %
-Restaurant and miscellaneous goods ? 3.0%
NCR annual inflation picked up to 5.2 %; Areas outside NCR up by 4.1 %
? DOE said TRAIN hits 50% of power supply, a one two punch in the consumers electric bills this summer. Excise taxes were imposed on diesel and bunker while higher excise taxes were levied on coal. On grid facilities of Coal power plants share in the power capacity is 37 %, while diesel and bunker share at 14 %. Excluded are off grid facilities that are run mostly by diesel. This is a typical example of injuring the energy sector with heavy taxes (Manila Bulletin, Myrna Velasco, 4/1/2018).
? Higher prices takes toll on the consumers after 3 months of the Train Act. Consumer spending is expected to slow because Train is seen to reduce, instead of increase, the spending power of a large majority of Filipino workers. Only 15 % of workers get tax savings, while 100 % of the workers are paying higher excise taxes. The biggest impact of Train is the higher excise tax on fuel since bulk of the fuel used and sold is used by transport industry. ( Manila Bulletin, Train1, peso, oil take toll on consumers , March 18, 2018 )
? LKI said consumers, we don?t understand those economic lingo. What is real is that we consumers feel the pangs of high prices (same as in item 9)?
? Train will raise most Filipino incomes in 2018 by as little as 0.3% for the near poor to as much as 7.3 % for the middle class. However, Train will reduce the incomes of the 3 poorest income groups (poor and subsistence poor) and more so the incomes of the super-rich. Because taxation aims to make the tax system progressive, lower incomes for the super-rich is okay. But lower incomes for millions of poor Filipinos is unconscionable. Train proponents knew this all along and made sure to earmark part of the Train revenues to cash transfers that could help them tide over. Train increased most of Filipino incomes except the super-rich while the poorest benefit the least. In exchange, Train imposed excise taxes on goods like ssb, automobiles and petroleum products. Estimates suggest that these would be over everyone ?s income, but the reductions are especially large for the super-rich, but not exceeding 1% of their annual income because the richest tenth tend to consume more than half of all petroleum products. Train excise taxes hasten the rise of prices i.e. inflation, it will reduce everyone?s income, but negative impact on the incomes of the poor is as much as 3x the impact on the super-rich. All in all, train impacts on personal income taxes, excise taxes, VAT, and inflation, the poor comes out as worse ?off. Train allocates 30% of its revenues to palliative measures that can help tide over specific sectors that Train hurts. Train may have trampled on and railroaded the poor. ( Dissecting Train?s impact on our incomes, April 6, 2018 , Rappler.com )
? Train law has both direct and indirect effects on the cost of goods with price hikes particularly felt by the poor. DOF only computed the direct effects of the tax reform law, it did not anticipate any change in behavior, citing the Lucas critique, which argues it is naïve to try to predict the effects of a change in economic policy entirely on the basis of relationships observed in historical data. Any change in policy, in this case Train, will alter the behavior of individuals. For instance there was profiteering of traders and bigger adjustment on the expectation of higher costs somewhere. ( Chrisee Dela Paz, March 5, 2018, Rappler.com )
? Prices of commercial rice, chicken, school supplies, canned goods, bond paper, fast-food chains, and barber and parlor shops among others continue to rise. The bandwagon continues
? Nielsen Data index shows that prices of ssb in sari sari store jumped to 20%, 21 % for carbonated soft drink and 18 % for energy drink. Thus sales in sari sari store declined by 8.7%for ssb, while powdered juice and tea declined by 15.4% and 18 % respectively. Sari sari stores sell more to the poor consumers. Both parties are suffering from the impact of Train.
? When Congress enacted the Expanded or Reformed Value Added Tax to 12 % in Republic Act No. 9337, the law added ? mitigating measures ?to lessen or minimize its impact on consumers, thus it reduced to ZERO the excise taxes on kerosene, diesel, LPG and bunker fuel , otherwise called the ?socially sensitive products ?. The Train law removed those ZERO excise taxes and on top of the 12% VAT. The Train law is thus called by many as Anti Poor.
? The Price Act authorizes DTI and DA to set Suggested Reasonable Retail Price or SRP on all basic necessities and prime commodities. This is an effective price enforcement and monitoring tools, set behavior in the market place, assures reasonable returns to the businessmen and ensures consumer welfare. Let us do SRP, especially for food items like rice, meat and marine products, during these periods of runaway inflation, which is now forecast to fly high at 5% to 6 % for the period May to June. If need be , revisit LKI earlier proposal right after the Train Act took effect , assigning a Price Czar, with adequate and tough police power.
? Net satisfaction rating of the Cabinet for the 1st Quarter declined to moderate from Good.
? BSP Department of Economic Research show that inflation would rise within the 4.1 to 5 .pct band for the year. The possible upside risks include the Train implementation and the second round effects of Train such as higher wages, rise in the prices of goods and service , rise in utility rates, peso dollar exchange rate, and transport fares.
? Rice prices up anew in April. Palay price went up by 9 %. Retail price of well milled rice increased by 5% to P 43.70 per kilo. Retail price of regular milled rice is at P 39.91 per kilo.
? Pulse Asia survey of March 23-28, 2018, said 86% of adult Filipinos were ?strongly affected ?by the rise in prices of basic goods across each geographic area and socio economic groupings. 50% of Filipinos said controlling ?inflation ?as the second most urgent concern, top by higher wages. Some attributed the rise in prices due to the Train Act.
? Money Matters, editorial, PDI, April 30, 2018, issues pertaining to a person?s family economic condition matter most. Filipinos are most concerned with the prices of goods and services that they need. The recent Pulse Asia survey show that majority of Filipinos want the Duterte administration to focus on raising wages, controlling the increase in prices of basic goods and services and reducing poverty incidence. Inflation is expectedly a concern following the implementation of the Train I.
? Labor groups expect more workers to be laid off. (PDI, April 30, 2018). Coca Cola laid off 600 employees across the country and has grown to 900. That Train had something to do with it. Josie Garcia, a sari sari store observed a decline in her sales from every other day supplies stocking to 3 to 5 days.
? The BSP Department of Economic Research said that it projects the 2012 based April 2018 inflation to settle within the 3.9 ? 4.7 percent range, higher than the 3.8-4.6 % the group predicted for March. This is primarily due to the geopolitical tensions in the Middle East that caused a sharp increase in international oil prices spilling over to higher domestic petroleum prices for the month. In addition, higher electricity prices due to rice supply conditions put pressure on the prices.
? Poor feel price pain from TRAIN, Ben O. de Vera, PDI, and May 2, 2018. Latest PSA data showed that consumer price index for the bottom 30% income households in the country climbed to 5.3% in the 1st quarter vs. 2.8 % a year ago, and 3.5 % a quarter ago. For the bottom 30% income households, the year 2000 is used as base year.
? Train halts Philippine auto sales growth, slumps to 2nd worst in Asean in Q1 2018, Philippine Star, and May 2, 2018. Auto sales dipped to 8.5% mostly attributed to the Train Act which implemented a higher excise taxes on automobile. Vehicle production also nosedived by 37.8% in the 1st quarter.
? GMA News, May 3, 2018. Pernia said at the sidelines of the ADB 51st Annual Governors meeting, that inflation in April exceeded the target and that oil prices have been going up and also the TRAIN is ? a culprit.
? PSA inflation report for April stands at 4.5%, up from last month of 4.3%.
? Since the Duterte administration took office in June 2016, based on PSA data, inflation data trend are going up and the Train Act worsened and accelerated the pace beyond the government target.
? May inflation stood at 4.6 % nationwide and 4.9 % in NCR. Dubai crude reached USD 74.20 /barrel and Peso exchange rate is Php 52.1948. (Data on Philippine inflation, NCR inflation, Dubai crude US$/bbl. and Average Forex).
? Suggested Retail Prices on basic necessity and prime commodities as of June 8, 2018 vs end 2017 show SRP on goods hiked ,prices rising and more expensive , e.g. Canned sardines from 3%-11%, powdered milk 5 %, luncheon milk from 3% -18%, meat loaf 5%-110%, corned beef 2% -7%, beef loaf 3%-10%, all condiments like vinegar, patis , soy sauce 4%-15 % , toilet soap 4 % and candles 55 -8%. No SRP increases were noted for coffee, bread and bottled water.
? The Department of Agriculture is reportedly issuing SRP on certain agricultural products like rice, milkfish, tilapia, galunggong , chicken, fresh meat products and certain vegetables.
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