Top 10 myths for oil tax hike

* This is my article in BusinessWorld last January 17, 2017.

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An excise tax is defined by the Department of Finance (DoF) as “a tax on products that have a negative effect on health or the environment… on nonessentials and luxury items.” With this definition, the DoF therefore, should abolish the tax on oil products, not increase it.

Here also are the 10 myths and alibi why the DoF and other sectors tend to demonize oil and are proposing oil tax to be as high as possible.

MYTH 1
OIL IS BAD FOR THE ENVIRONMENT.

Truth: Transportation of people and goods via cars, jeepneys, buses, and trucks that use oil is good for the environment because there will be no need for millions of cows, carabaos, or horses that produce tons of animal manure on the roads daily. Sure, there are particulates and other polluting gases but they are minor compared to tons of animal manure everywhere, more dirt, flies and worms in the environment. Also, cheaper LPG will encourage poor households to stop using firewood and charcoal for cooking which will result in more trees being saved.

MYTH 2
OIL IS BAD FOR PEOPLE’S HEALTH.

Truth: Cars, vans, jeepneys, and buses that use oil spare the oldies, sick, babies, pregnant women, etc. of hard labor and more diseases due to exposure to heat, rains, dust, and exhaustion if they were to ride bicycles or skateboards or animals that do not use oil. Also, transport of agricultural products from Ilocos, Cordillera, Cagayan Valley, or Bicol to Manila via animals not trucks will only lead to food spoilage. People will have little or no access to fresh vegetables and fruits, resulting in poor health.

MYTH 3
OIL IS NOT A PUBLIC GOOD.

Truth: Oil is a public good. As shown above, no petroleum, no modern and comfortable life, no mass production of food and transportation of people and goods. Public goods like public education, public health care, roads, bridges, etc. are either provided to the people for free or highly subsidized prices. Oil as a public good only needs zero tax, or at least low tax.

MYTH 4
MORE CO2 EMISSION FROM OIL MEANS MORE POLLUTION, MORE “MAN-MADE” CLIMATE CHANGE.

Truth: CO2 is not a pollutant gas; it is a useful gas. It is the gas that humans exhale, the gas that our pets and farm animals exhale, the gas that plants use to produce their own food via photosynthesis. Climate change is natural and cyclical. Planet Earth is 4.6B years old, there was climate change ever since marked by warming and cooling cycles.

MYTH 5
INCREASING THE OIL TAX IS NECESSARY TO FINANCE MORE PUBLIC INFRASTRUCTURE.

Truth: Government has trillions of pesos already from income taxes (corporate and individual), VAT; excise tax from alcohol, tobacco, mining, new vehicles; from documentary stamp tax, franchise tax, from annual vehicle registration tax, withholding tax, capital gains tax, travel tax. And from various regulatory fees (passport fees, driver’s licenses, terminal fees, etc.)

Government simply has too many personnel, officials, employees, consultants and pensioners; too many offices, travels, trainings, and meetings. Perhaps these items alone constitute about 70%-80% of the annual budget. So little is left for public infra, school buildings, government hospitals, etc.

MYTH 6
THE OIL TAX INCREASE WILL HAVE MINIMAL IMPACT ON THE POOR.

Truth: Oil is used by the poor not only in jeepneys but also in tricycles, farm tractors and harvesters, irrigation pumps, fishing boats, interisland boats, generator sets in off-grid islands. While the DoF plans to introduce “Pantawid Pasada” for jeepneys, nothing has been allotted for farm tractors and other equipment used by poorer farmers, fisherfolks, hunters, etc.

As shown below, fishing boats that use gasoline, tractors and irrigation pumps that use diesel, tricycles that also use gasoline, will be slapped with 12%-19% price hike simply because of the proposed tax hike (see table).

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MYTH 7
THE OIL TAX INCREASE WILL HIT THE RICH MORE THAN THE POOR.

Truth: Oil use is a small portion of the overall consumption of the rich. The rich buy more expensive but more fuel-efficient cars and SUVs, they spend more on expensive restaurants, hotels, schools and universities, condos and subdivisions, etc.

MYTH 8
FOOD PRICES WILL NOT GO UP SIGNIFICANTLY WITH OIL TAX HIKE.

As mentioned above, oil is used not only by trucks, jeeps, and boats that transport agriculture, meat and fishery products. Oil is also used by farm tractors and harvesters, fishing boats. A 3.6% food inflation in 2016 (despite around 50% hike in diesel prices) is not small for the poor.

MYTH 9
NO OR LOW EXCISE TAX MEANS SUBSIDIZING THE OIL CONSUMPTION OF THE MIDDLE CLASS AND RICH.

Truth: There is no subsidy, zero, unlike subsidies for public education and health care or rice price subsidies using tax money. When you walk down the street and encounter a mugger who didn’t demand your money, you do not owe that mugger anything.

MYTH 10
GOVERNMENT IS LOSING SOME P145 BILLION/YEAR POTENTIAL OIL TAX REVENUES.

Truth: Government has no entitlement to more income and savings of the people other than income taxes that are already high, and other existing taxes. Government is losing more from wasteful spending or stolen money via corruption. Government can save more money for infrastructure by reducing too many personnel and consultants and by abolishing and defunding old welfare programs that do not work before it creates new welfare programs.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a Fellow of SEANET. Both are members of Economic Freedom Network (EFN) Asia.

Cheap oil, natural gas and coal prices

Last Saturday, a $35 a barrel oil at West Texas Intermediate (WTI) was breached. Airlines and shipping lines’ fares should go down, more tourism. More farm mechanization, more cows and carabaos will be spared of heavy farm work.

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http://oil-price.net/

Some oil products other than WTI and Brent are actually cheaper than these. Like Western Canada, Iraq heavy, etc.

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Source: http://www.bloomberg.com/news/articles/2015-12-14/never-mind-35-the-world-s-cheapest-oil-is-already-close-to-20

The anti-fossil fuel planet saviours

Many of the tens of thousands of planet saviours and climate hangers who went to the UNFCCC COP 21 meeting in Paris who hate fossil fuel may be shivering with this development. They want the world to cut petroleum use while they do their frequent jet-setting global meetings and junkets on airplanes that fly and cars that run on petroleum.

They will dislike that there will be more trucks, more buses, more cars, more planes, more ships that move more people and goods across cities, islands, countries and continents, as oil prices keep falling.

The animal rights activists should welcome this development too. Millions of cows, carabaos, horses, other big animals will be spared of heavy and punishing farm work as it is cheaper and faster to use more tractors and machines than those animals.

OPEC now a price taker, not price dictator

The old, tested greed by OPEC member-governments have been shattered by heavy competition from shale gas/oil drillers and producers in the US, Canada, etc. Before, whenever oil prices fall down, OPEC would quickly cut their output from 30 M barrels per day (bpd) to around 29 M bpd. Now they cannot and will not do that. They are forced to keep producing at 30-31 M bpd, accept low prices and lower revenues, just to keep their market share.

The rest of us, oil consumers around the world, benefit from this global competition among oil and gas producers. In the Philippines, the minor Peso/$ depreciation contributed to small price rollback. Besides, the $35 per barrel is for 1 or 2 months delivery, meaning by January or February 2016, not December 2015.

Peak Oil theory is discredited

Peak oil, along with peak food and Malthusian hypothesis, climate alarmism, discredited. The short- and medium-term scenario is that world oil prices will hover between $40-$60, still low compared to 2012-2013 levels of nearly $100. And lower than the past decade’s prices.

We are in a period of cheaper energy, cheaper food, longer lifespan, healthier people. The problem of many economies now is more fat/obese people than thin and undernourished people. When people die at 50 or 60 yrs old, some would say, “he/she died young”. In 1900, when a person dies at 40 or 50 yrs old, that’s “long” already because life expectancy was only around 33 years.

So few decades from now, if a person dies at 70-80 yrs old, other people will say, “he/she died young.” Why, because average life expectancy then will be at around 100, 110 yrs old.

Regulated fares and the LTFRB

But why despite oil and fuel prices going down, public vehicles in the Philippines do not automatically bring down their fares?  When fuel prices go up, PUV operators and drivers ask for a fare hike again.

The Land Transport Franchising Regulatory Board (LTFRB) of the DOTC is a jerk government agency. MARINA (regulator for shipping companies and operators) and CAB (regulator for airlines) allow fare deregulation. So airlines’ fares can go up or down depending on the travel season. The LTFRB officials, past and present, are among the hard-core central planning bureaucrats. No fares can go up or down unless they give permits, unless they affix their signatures.

Not only world oil prices, natural gas prices are also falling, chart over the last 7 1/2 years. More energy at cheaper price, more prosperity.

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http://www.infomine.com/investment/metal-prices/natural-gas/all/

And world coal prices too. Since the Paris climate agreement is non-binding, no penalties for countries that do not obey their promised emission cuts, then more developing countries like India, China, Indonesia, Philippines, Brazil, etc. will be using this energy source to further empower their economy. Rich countries too like Japan and the US. Prices chart over the last 14 years.

coal
http://www.infomine.com/investment/metal-prices/coal/all/

Global capitalist competition will spring us more surprises, for the better. There are lots of shale gas/oil rigs that have been temporarily closed because of low prices. But there are lots more shale oil and gas deposits around. More global prosperity is the game.

Deflation

Yes, cheap energy prices can contribute to deflation or declining overall prices of commodities and services. But it will be a good type of deflation. More output per unit of input. In this case, more oil, more natural gas, per rig.

There is a distinction between good and bad deflation. The good is productivity-driven (cheap oil, cheaper mobile phones and flat tv, cheaper food and shoes, etc.). The bad deflation is due to poor economic outlook in the future (people seldom spend even if they have the money).

There is little role for governments in this type of deflation, and they should not intervene more, like imposing higher petroleum taxes. The WB and IMF have been lobbying for this tax hike for sometime now. They believe that petroleum being a “public bad” should be taxed more. Nehh? Those WB, IMF, UN, other multilaterals’ officials and bureaucrats love to jet-set and travel a lot, on petroleum-powered planes and SUVs, meaning it is useful for them, then declare petroleum as a “public bad”?

Oil prices and taxes, 2012

* This is my article in the online magazine last August 24, 2012.

http://www.thelobbyist.biz/perspectives/less-gorvernment/1345-oil-prices-and-taxes

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Oil Prices and Taxes

Local oil prices have significantly jumped the past few days by about P3 per liter. This reflected the upward movement of oil prices in the world market over the past few weeks. As usual, the left-leaning groups raised howl and criticized the oil companies for their “greed” and called on the government to have another round of tax hikes on oil or other products and services.

Last July 11, 2012, I attended the “Platts Forum on Oil, Coal and LNG” at Edsa Shangrila Hotel. Among the speakers there was Ms. Zenaida Monzada of the Department of Energy. Below are among the slide presentations she gave in the said forum.

Taxes that contribute to the higher retail prices of petroleum products are (a) excise tax, P4.35 per liter for gasoline, P3.67 per liter for jet fuel, P1.63 per liter for diesel, and (b) value added tax (VAT) 12 percent. This means that for the P54 per liter unleaded gasoline, about P10 of it goes to excise tax and VAT alone. Or the government is directly accountable for expensive oil by about P10 per liter. There are other indirect taxes of course, like corporate income tax, documentary stamp tax, real property tax, etc. of the oil companies, trucking and gas stations.

The lower chart shows that the Pesos per liter retail price has moved along with the world crude oil price, from 1984 onwards.

 Below, the same story is shown. From 1999 to June 2012, local gasoline and diesel prices have moved generally in steep with international crude and refined product prices. And world oil prices are dictated by the governments of the major oil exporting countries, both OPEC and non-OPEC member countries.

The conspiracy theory therefore, of oil companies dictating local oil prices to satisfy their greed is standing on a hollow ground.

Below, “prevailing prices” refer to early July 2012 prices. Prices across various oil dealers and retailers are generally similar, with minor price differential that can be attributed to other business costs like land lease or rent, and/or varying profit ratio.

The lower table shows comparative prices across major capital cities, converted into Pesos per liter. Philippine oil prices are not among the highest in the region. The most proximate explanation would be that those countries that have higher oil prices than us have higher taxes and fees, direct and indirect, that are slapped on oil products and oil producers and retailers.

The bottomline is that contrary to common public perception that the oil companies are the main instigator of oil price hikes, it is not. It is more due to the (a) governments of oil exporting countries like those in OPEN-member countries that set the price of crude oil, and (b) governments of net oil importing countries like the Philippines, for the various taxes and fees imposed both on the oil products and the companies that import, refine, transport and retail oil products.

Repeated calls to re-regulate if not nationalize the local oil industry are misguided and wrong. Instead of having more government involvement and intervention in local oil price setting, there should instead be lesser government taxes and involvement. The excise tax on oil products should in fact be abolished, instead of raising it as proposed by some sectors.