On Tuesdayu, March 24, just a day after his spokesperson said there’s no oil crisis (only a “price disruption”), President Ferdinand Marcos Jr. signed an executive order declaring a “state of national energy emergency” for up to a year.

In it, Marcos created a committee called UPLIFT (Unified Package for Livelihoods, Industry, Food, and Transport) that comprises Cabinet members who will focus on the response to the US–Iran conflict. (Shouldn’t the cabinet be really working on this anyway?)

Then on March 25, President Marcos signed Republic Act 12316 into law, giving himself the authority to suspend or reduce excise taxes on petroleum products whenever Dubai crude breaches $80 per barrel. This comes at a time when world oil prices have breached $110 per barrel and the peso slid past P60 per dollar. The administration clearly wants to show it’s doing something.

But doing something is not the same as doing the right thing. Blanket excise tax suspensions are an expensive, poorly targeted way to help Filipinos cope with high fuel prices. Most of the benefits will flow to the richest households, not the poorest ones. In short, it will likely be a gift to the rich.

The law in a nutshell

When the average monthly price of Dubai crude hits $80 per barrel, RA 12316 authorizes the President to suspend or reduce excise taxes on petroleum products — currently P10 per liter for gasoline and P6 per liter for diesel under the TRAIN Law or Tax Reform for Acceleration and Inclusion.

Each suspension can last up to three months, with a maximum aggregate of one year, and the authority expires at the end of 2028.

The law also requires the Development Budget Coordination Committee (DBCC) to submit reports to Congress every 15 days on forgone revenue, distributional impact, and cost-benefit analysis. Oil companies, for their part, must submit monthly breakdowns of their cost components to the Department of Energy (DOE).

These transparency provisions are welcome, but they don’t change the fundamental economics of the policy.

Who actually benefits?

Just like any other emergency measure, RA 12316 is well-meaning. But who actually benefits from it?

In a new UP School of Economics (UPSE) policy note published this week, I used the 2023 Family Income and Expenditure Survey and the 2022 input-output table of the Philippines to trace who benefits from a blanket suspension of fuel excise taxes. The results are stark.

For gasoline, the bottom 30% of households by income would capture only about 17% of the forgone tax revenue. For the richest 30% of households, they get nearly half of the forgone tax revenues. The richest 10% of Filipino households alone would capture over 21% of the benefit.

This makes sense: well-to-do households own more cars, motorcycles, and other private vehicles and consume far more gasoline. The graph below shows that mean per-person spending on gasoline and diesel is much higher for those with higher income.

For diesel, the picture is even more lopsided. The poorest 30% would receive just 2.5% of the forgone diesel excise revenue, while the richest 30% would capture a staggering 85%. The richest tenth alone would take home 54% of the diesel tax benefit. Diesel consumption is heavily concentrated among higher-income households and commercial users, not the jeepney-riding poor.

The DOF has estimated that a full excise suspension taking effect by May could cost the government roughly P136 billion in 2026. That’s a massive fiscal cost for a policy that overwhelmingly benefits those who need help the least.

Doesn’t cheap fuel help the poor indirectly?

A common retort is that fuel prices affect everything (think food, transport, electricity) so reducing them benefits everyone, including the poor.

There’s a kernel of truth here. In a companion UPSE discussion paper, also published this week, I estimated the “pass-through” of oil prices to the Philippine economy using 25 years of monthly fuel price data. Pass-through refers to how oil price shocks cascade to the rest of the economy and result in more expensive goods and services.

I find that a 10-percentage-point increase in oil prices raises gasoline prices by about 4.9 percentage points and diesel prices by about 6.6 percentage points within a year. Over that same period, the effect on overall consumer prices is roughly 0.65 percentage points. That’s substantial relative to the government’s inflation target of 3%.

Crucially, a large share of this inflation impact comes through non-fuel channels: food, public transport fares, electricity, and production costs. These indirect effects do tilt slightly more toward poorer households, who spend a larger share of their budgets on food and public transport.

But here’s the thing: precisely because those indirect channels are what matter most for the poor, the government could address them far more efficiently with targeted instruments. These include transport subsidies for public utility vehicles, temporary cash transfers to the poorest households, and electricity lifeline rate support.

These interventions can be directed at the people who actually need them, without handing windfall tax savings to the richest households in the country.

Fuel tax cuts are popular because they’re politically easy (see how fast Congress crafted the bills), highly visible, and requires no administrative sophistication. It is also, by any serious distributional analysis, “regressive”: it gives more to the rich than to the poor.

Sure, RA 12316 adds some guardrails that previous proposals lacked. The DBCC reporting requirements and oil company disclosure provisions are positive steps toward transparency. As well, the president’s authority has a built-in expiration date.

But the government is essentially choosing to forgo over hundreds of billions of pesos in revenue, at a time when the fiscal deficit is already wide, just to deliver a benefit that disproportionately accrues to car-owning, diesel-guzzling higher-income households. Do we really want to push for pro-rich policies in a crisis like this?

What should have been done instead

A smarter approach would be to allocate the collected fuel tax revenues to targeted relief: expanded Pantawid Pasada for public utility vehicle (PUV) drivers, temporary unconditional cash transfers to the bottom 30% of households, and electricity subsidies for lifeline consumers. These cost less, reach the right people, and don’t erode the tax base that funds public services.

The experience of 2018 is instructive. Right after the TRAIN law’s excise taxes were passed, fuel prices went up and inflation peaked at 6.9% that year. The government eventually rolled out cash transfers to cushion the blow. It was late and imperfect, but it was better targeted than a blanket tax cut. That lesson should have been learned.

A more valid concern is the way the government hands out ayuda. Are we really sure that the right beneficiaries are reached by the government? There are lots of leakages in the Philippines, compounded by the removal of the master list of poor households called Listahanan. The ball is now with the Department of Social Welfare and Development and other agencies to improve their delivery mechanisms. But current inefficiencies should not be used as an excuse to further enrich the richer segments of society with fuel tax cuts.

To sum, the real question isn’t whether to help Filipinos cope with high oil prices; of course we should. The question is whether we’re willing to do it smartly, or whether we’ll keep defaulting to the fiscally lazy options laden with unintended consequences. – Rappler.com

Dr. JC Punongbayan is an assistant professor at the UP School of Economics and the author of False Nostalgia: The Marcos “Golden Age” Myths and How to Debunk Them. In 2024, he received The Outstanding Young Men (TOYM) Award for economics. Follow him on Instagram (@jcpunongbayan).

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