DBM eyes cost-cutting measures if fuel excise tax is suspended

By Justine Irish D. Tabile, Senior Reporter

THE DEPARTMENT of Budget and Management (DBM) said that it is looking at cost-cutting measures should the revenue losses from the proposed suspension of excise tax on fuel are not fully offset.

“At this stage, there is no automatic or immediate shift in expenditure priorities,” Budget Undersecretary Goddes Hope O. Libiran told BusinessWorld via Viber.

“Should the projected revenue losses from the proposed excise tax suspension not be offset by compensatory revenue measures, the government will need to adopt targeted efficiency-enhancing interventions to remain consistent with its fiscal deficit objectives,” she added.

In particular, Ms. Libiran said that the department is looking at the rationalization of nonessential operational expenditures to safeguard priority and high-impact programs. Nonessential spending includes travel, training, consultancy services, and discretionary spending on materials and supplies.

“The ongoing implementation of a uniform four-day workweek is likewise being assessed as part of a broader expenditure optimization strategy,” she said.

However, the DBM official said that the full fiscal implications of the potential fuel excise tax suspension and corresponding policy responses are likely to be addressed at the next Development Budget Coordination Committee meeting in April.

“The DBM remains committed to ensuring that any course of action achieves a prudent balance between delivering immediate economic relief and maintaining medium-term fiscal sustainability and macroeconomic stability,” Ms. Libiran said.

Last week, Finance Secretary Frederick D. Go said that the government is looking at how to delay non-urgent programs and capital outlays that the government does not need at this point.

In particular, he said that these non-urgent capital outlays include those with an economic rate of return of only slightly above 10%.

“So, if the economic rate of return is, say, 19% or 20%, I think we should just pursue it because it is a great return for the investment the country puts in,” he told reporters.

The suspension of the excise tax on fuel products is among the interventions being looked at by the Philippine government amid oil price shocks and supply chain disruptions due to the war in the Middle East.

The House of Representatives and the Senate last week approved a bill that authorizes the President to suspend or reduce excise taxes on petroleum products during national or global economic emergencies as urgent.

The bill is now awaiting President Ferdinand R. Marcos, Jr.’s signature.

BAND-AID SOLUTION?
However, some economists see the measure as a band-aid solution, citing the fuel tax suspension’s potential impact on the country’s already tight fiscal space.

“The suspension of excise fuel taxes while providing short-term relief will also impact the country’s fiscal space,” Philip Arnold “Randy” P. Tuaño, president of the Philippine Institute for Development Studies, told BusinessWorld via e-mail.

Citing data from the Department of Finance, he said that the suspension of fuel excise tax will result in revenue losses of around P136 billion if implemented from May to December 2026.

This excludes the additional P10 billion in value-added tax  revenues, he said.

“The total amount is around 8-9% of our projected deficit for the year. Thus, while lower fuel taxes will support household consumption and will provide some slight relief on transportation and logistics costs, this may be offset by lower government spending or even delays in disbursements following lower revenues,” he added.

Peter Lee U, associate professor and dean of the University of Asia and the Pacific School of Economics, said that the lower tax collections will push the government to borrow more to finance projects that were originally planned.

“This will lessen fiscal space in the future as the national debt as a percentage of gross domestic product (GDP) will grow. If GDP will grow more slowly (a possible, at least, if not likely scenario), then the ratio will grow even faster,” he said.

Nevertheless, he said that the measure will help slow down the increase in pump prices.

Economic managers are targeting 5-6% GDP growth this year.

However, Jose Enrique “Sonny” A. Africa, executive director of the think tank IBON Foundation, said that he disagrees with the argument that the excise tax on fuel should not be suspended, as it disproportionately benefits richer households.

“This is blind to how oil excise taxes eat up a larger share of the income of poorer households and also fails to understand that poorer households are more exposed to second-round inflation effects on food, transport fares, and basic goods and services,” he said in a Viber message.

Mr. Africa said that suspending fuel excise taxes even for a full year will not dramatically affect GDP growth.

“Oil excise tax collections are less than P15 billion monthly on average and don’t even reach two-thirds of a percentage point of annual GDP,” he said.

Mr. Africa said that the main benefit of the measure is to provide relief for poor and middle-class Filipinos who are reeling from spiraling costs.

“The real issue is not the revenue loss, but why the government chooses to rely on regressive taxes instead of taxing extreme wealth and windfall profits to finance critical relief,” he said.

Mr. Africa said that the Marcos administration can choose to expand the fiscal space by taxing billionaires’ wealth, restoring previous income tax rates on large corporations and the richest families, and windfall taxes on energy and real estate.

He said that the rational response is for the government to absorb the cost-push, supply-side oil price shock by implementing measures such as cutting taxes to help protect the purchasing power of poor and middle-class households.

BUDGET RELEASES
Meanwhile, the DBM said 63.5% of the 2026 national budget has been released as of the end of February, reflecting a slower disbursement rate compared to the previous year.

In its Status of Allotment release report, the DBM said that P4.31 trillion of the budget had been released to national agencies and local government units as of Feb. 28.

This leaves P2.48 trillion remaining undistributed from the P6.793-trillion budget for the year.

The pace of releases was slower than the 67% rate posted a year earlier.

Releases to government agencies and departments amounted to P2.77 trillion, equivalent to 75.2% of their allocations.

Special purpose funds released by the end of the month stood at P141.9 billion, representing 19.7% of the funds allocated.

Meanwhile, automatic appropriation releases were at 58% or P1.387 trillion.

These include P1.19 trillion for National Tax Allotment, P93.98 billion for block grant, and P82.21 billion for the retirement and life insurance premiums.

Excluding the other releases worth P14.417 billion, the budget release rate is 63.3%, as the released funds reached P4.297 trillion out of the P6.793-trillion original program.

The other releases include unprogrammed appropriations worth P9.55 billion, 2025 continuing appropriations of P4.816 billion, and special purpose funds worth P4.58 billion.

“The slower February allotment release looks more like timing and prudence than a policy change,” Reyes Tacandong & Co. Senior Adviser Jonathan L. Ravelas said in a Viber message.

He said that agencies are still aligning cash plans, procurement, and safeguards by February, which is why the DBM releases carefully while watching out for revenues and global risks. 

“For March, I expect releases to stay measured, not frozen, with a pickup once clearances are completed, particularly for infrastructure and priority programs,” he added.

Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said that the slower disbursement rate still reflects some government underspending in view of the anomalous flood control projects.

“Anti-corruption measures and other reforms to further level up governance standards may have caused greater caution on some government spending, especially on infrastructure, to prevent the risk of corruption,” he said in a Viber message.

For the coming months, he said that the government’s catch-up spending could lead to a higher disbursement rate.

“But (this) could still be offset by more cautious government spending to prevent risk of corruption and leakages,” he added.