Excise tax on fuel reduction to ease inflationary pressures - economist

MANILA – The government's plan to temporarily reduce the excise tax on fuel will help ease inflationary pressures but could lead to wider budget deficit, an economist said.

Malacañang earlier said President Ferdinand R. Marcos Jr. will formally ask Congress to grant him emergency powers to reduce excise tax on petroleum products amid the crisis in the Middle East.

"Delicate balancing act indeed, given the fact that higher income brackets pay most of the excise taxes that partly fund programs for the poorest of the poor," Rizal Commercial Banking Corporation chief economist Michael Ricafort said in a Viber message.

"Alternate would be targeted subsidies for the most vulnerable sectors," he said.

Ricafort said Nymex crude oil is now at over USD100 per barrel, the highest recorded in nearly four years following the tensions in Middle East.

Ricafort said world crude oil prices could add more than 1 to 1.5 percentage points to inflation at current world crude oil price levels if sustained.

Inflation rose to 2.4 percent in February, higher than the 2 percent recorded in January this year, but still within the government's 2 percent to 4 percent target range.

Ricafort said reducing excise tax on fuel could lead to wider budget deficits and could lead to more national government (NG) borrowings and higher outstanding NG debt.

"But [it] would help mitigate or ease inflationary pressures as an offsetting positive factor," he said.

Ricafort said higher inflation would be a drag on economic growth.

"This could lead to higher import bill, wider trade deficit, higher prices of imported oil, also higher transport fares, wages, and other affected goods and services or second-round inflation effects and would also lead to higher inflation expectations," he said.

"So lower excise taxes would help reduce that inflationary pressure," he added. (PNA)