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DOF admits it did not compute indirect effect of TRAIN on inflation

The Department of Finance admitted Thursday it has yet to compute the indirect effect of the Tax Acceleration for Inclusion and Reform (TRAIN) law on inflation, which Senator Paolo Benigno Aquino IV sees as the reason economic managers do not think of the inflationary burden on the poor.

During the Senate hearing on the implications of the TRAIN law, Bangko Sentral ng Pilipinas Deputy Governor Diwa Gunigundo said only 0.7 percentage points or 12.2 percent of the 5.7 July inflation rate can be attributed to the direct effect of the tax reform law.

Aquino asked if the indirect effect of the law was included in the computation and assumption on inflation.

“Many of us were saying that is the direct effect, ang pagtaas ng pump price, pero baka hindi pa nakikita ‘yung epekto niyan sa pagkain, goods in the market. So when you were initially pushing for TRAIN 1, was that considered, kasama ba sa computation n’yo ‘yung indirect effect?” the senator said.

Finance Assistant Secretary Antonio Joselito Lambino II said the computation presented by the finance officials were based on the direct effect and pegged it at the initial assumption of inflation at 0.4 percent.

Aquino said it’s time for the economic managers to take into consideration the indirect effect of the law.

“There are times na ‘yung indirect effects are larger than the direct, because ‘yung indirect can go exponentially in all products and again this was largely discussed, napag-usapan ito many times during the hearings privately, publicly, on the record, off the record,” he said.

“Marami talagang mga produkto, kundi man lahat ng produkto, ang maapektuhan pag tumataas ang diesel at gasoline. I think that is a very key assumption that was, maybe, not shared enough with the Senate panel when we were discussing the law,” he added.

The senator said the economic managers must look at both the direct and indirect effects of a law.

“Hindi pwede na ‘yung direct effect lang ang tinitignan. Maybe this is also the reason why we are always coming to disagreements, because the common experience for people—it seems to be—more than 0.4  percent and now we have 0.7, and now we are saying hindi naman pala kasama ‘yung indirect effect,” he said.

“Maybe we are coming closer to a better number which is closer to the experience of Filipinos, malapit sa karanasan ng mga tao na parang biglaan talaga itong pagtaas na ito,” he said.

Gunigundo insisted that TRAIN is not the main factor in the increase in commodity prices.

“Nagkataon na may TRAIN, plus high oil prices, plus weather. ‘Yun ang driver ngayon ng inflation,” he said.

Aquino said the economic managers should now consider suspending the implementation of the excise tax on fuel to address higher oil prices.

“Kapag mataas ang inflation, i-suspend ang excise tax, kapag stable na baka pwede nang ipabalik. Currently na nasa $73 per barrel and ang expectation it will breach $80 or above. It is really the best time to suspend excise tax on fuel,” he said.

Lambino said it would be better to have rice tariffication than suspend the excise tax on fuel.

“The tariffication bill will lower the price of rice for everybody as opposed to suspension of excise tax which will disproportionately benefit the rich,” the Financial said.

Seventy percent of petroleum products are consumed by the top 20 percent of the population and 50 percent of petroleum products are consumed by the top 10 percent of the population, Lambino noted.

“This is simply because they have cars and they load up their tanks with P3,000 worth of petroleum whenever they fill up full tank,” he said.

But Aquino said that is the direct effect as he asked again if the economic managers have considered the indirect effect of the proposal.

“Kapag kinompute mo na ‘yung indirect sa palagay ko makikita mo na mas matatamaan ang  mahihirap. Maybe directly we are talking about cars, SUVs but indirectly we are looking at the price of fertilizer, the price of delivering vegetables, the price of fisherman’s fuel when he goes to sea,” he said.

“These are all indirect effects which add to food. Sa palagay ko, so we could all talk at the same page, endeavor on a number that deals with the indirect effect as well,” he added.

He said there will be another tranche of increases by January 2019 and January 2020.

“Hindi alam ng maraming tao ang TRAIN 1 tatlong beses ang pagtaas n’yan, January 2018, January 2019, at January 2020. Magbe-ber months na po tayo, tataas na naman ang presyo ng bilihin, pagpatak ng Enero itataas na naman ang diesel at gasolina natin, kailangan na siguro ng paraan upang ‘di na ito matuloy,” he said.

Senator Sherwin Gatchalian, chairman of the committee on economic affairs, said he would closely monitor prices and might give a recommendation regarding Aquino’s proposed measure by the third of fourth quarter of the year.

“Gagawin namin itong hearing on a regular basis, para ma-monitor nating mabuti ‘yung presyo, ma-monitor natin mabuti ‘yung pagtaas ng inflation, at by the end of third quarter or fourth quarter we would have a clearer picture kung anong irerecommend,” he told reporters after the hearing. —VDS, GMA News