TRAIN revenue and inflation update
(May 2018)
9/27/2016 DEPARTMENT OF FINANCE 2
Fiscal space has expanded.
Higher tax collection supports the boost in government spending.
DEPARTMENT OF FINANCE 3
Source: Bureau of Treasury
Levels in billions of pesos Growth (%) Percent of GDP Q1 2017 Q1 2018 Increase Q1 2017 Q1 2018 Q1 2017 Q1 2018
Tax collection 479.9 558.4 78.5 12.8 16.4 13.4 14.3
BIR 370.4 423.1 52.7 12.2 14.2 10.4 10.8
BOC 104.1 129.8 25.7 15.1 24.6 2.9 3.3
Other offices 5.4 5.5 0.1 16.2 2.0 0.2 0.1
Non-tax revenues 52.4 61.4 9.0 -2.2 17.1 1.5 1.6
Expenditure 615.4 782.0 166.6 4.0 27.1 17.2 20.0
Fiscal balance -83.0 -162.2 -79.2 - - -2.3 -4.1
Notes: 1/ Nominal GDP in Q1 2018 was PHP 3.9 trillion.
S&P credit rating outlook:
BBB (stable) to BBB (positive)
The positive outlook reflects our view that improvements to the Philippines’ policymaking settings could support a track record of more sustainable public finances and balanced growth over the next 24 months,” S&P said.
“We may raise the ratings if the government’s fiscal reform program leads to further achievements over the course of the next 24 months,”
Inflation in May 2018 was higher but still moderate.
Inflation in first five months averaged 4.1 percent, slightly above the 2 to 4 percent target of the BSP.
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DEPARTMENT OF FINANCE 7
4.6
2.0 3.0 4.0
-1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0
Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18
Inflation (2012=100) vis-a-vis targets
Headline inflation (2012=100) Lower bound target Target Higher bound target
May 2018
However, month-on-month (MOM) inflation declined and reached zero in May, indicating that prices are stabilizing.
9/27/2016
DEPARTMENT OF FINANCE 8
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0
Jan Feb Mar Apr May
Inflation rates %
MoM inflation 2018 (%)
Source: PSA 0.9
0.7
0.5 0.5
0.0
Historically, inflation was much higher.
DEPARTMENT OF FINANCE 9
Notes:
Base year for 1980 – 2005 is 2000 Base year for 2006 – 2012 is 2006 Base year for 2013 – 2017 is 2012
Source: Philippine Statistics Authority
17.5 10.910.4
9.5 50.0
22.6
1.0 4.0
14.1 10.6
13.7 19.4
8.6 6.7
10.4 6.7 7.5 5.69.3
5.94.06.8 3.0 3.56.07.6
5.52.9 8.3
4.2 3.8 4.6 3.2 2.6 3.6 0.7 1.32.9
-10.0 0.0 10.0 20.0 30.0 40.0 50.0 60.0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Inflation
Top 10 items with highest inflation rate
Items 2018 First 5
months average Jan Feb Mar Apr May
1 Tobacco 16.0 22.9 25.3 27.5 28.3 24.1
2 Operation of personal transport 10.6 14.5 14.1 17.8 22.9 16.0
3 Corn 7.5 10.4 11.1 13.3 13.7 11.2
4 Fish 12.3 11.2 12.9 12.3 11.4 12.0
5 Non-alcoholic beverages 1.1 3.9 7.1 9.4 9.8 6.6
6 Vegetables 3.0 2.6 6.0 6.7 7.0 5.0
7 Alcoholic beverages 4.6 5.1 5.3 5.5 5.6 5.2
8 Fruit 4.9 6.2 7.1 6.7 5.5 6.1
9 Meat 6.4 6.7 6.2 5.0 4.8 5.8
10 Electricity, gas, and other fuels 5.0 3.6 4.3 4.7 4.7 4.4 Source: Philippine Statistics Authority
Top 10 contributors to inflation (in percentage points)
Items 2018 First 5
months average Jan Feb Mar Apr May
1 Fish 0.7 0.6 0.7 0.7 0.7 0.7
2 Operation of personal transport 0.3 0.4 0.1 0.2 0.6 0.4
3 Rice 0.1 0.3 0.3 0.3 0.4 0.3
4 Catering services 0.2 0.2 0.5 0.6 0.4 0.3
5 Electricity, gas, and other fuels 0.4 0.3 0.4 0.5 0.3 0.3
6 Actual rentals for housing 0.2 0.3 0.4 0.4 0.3 0.3
7 Meat 0.4 0.4 0.4 0.4 0.3 0.4
8 Non-alcoholic beverages 0.1 0.1 0.2 0.3 0.3 0.2
9 Tobacco 0.1 0.2 0.3 0.3 0.3 0.2
10 Vegetables 0.1 0.1 0.1 0.1 0.2 0.1
Source: Philippine Statistics Authority
DEPARTMENT OF FINANCE 11
Three main causes of inflation
1. External events: geopolitical issues leading to higher world oil prices.
2. Tax reform: higher taxes for “bad” products but an investment in our future.
3. Domestic growth: more purchasing power of the people and higher capital imports to support infrastructure program.
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Increases in fuel costs were largely due to higher global oil prices and depreciation of the peso
DEPARTMENT OF FINANCE 13
Jan 2017
Feb 2017
Mar 2017
April 2017
May 2017
Jan 2018
Feb 2018
Mar 2018
April 2018
May 2018
Jan 2018
Feb 2018
March 2018
April 2018
May 2018 Dubai crude
(USD per barrel) 53.37 54.17 50.90 52.45 49.91 63.83 62.72 62.74 68.43 73.49 19.6 15.8 23.3 30.5 47.2 PHP/USD 49.74 49.96 50.28 49.86 49.86 50.51 51.78 52.07 52.10 52.19 1.6 3.6 3.6 4.5 4.7 Sources: BSP, Indexmundi, Reuters, Bloomberg
YOY growth Levels
0.0 500.0 1000.0 1500.0 2000.0 2500.0 3000.0 3500.0 4000.0 4500.0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
2016 2017 2018
Percentage
Inflation vis-a-vis price of crude oil (PHP)
Headline inflation (2012=100), left Indicative price per barrel of oil, right
PHP
Higher crude oil prices are caused by the combination of the following reasons
• Less production from OPEC member countries and Russia.
o Saudi Arabia, the world’s largest oil exporter, cutting supply to keep crude oil prices high.
o The US exiting its nuclear deal with Iran and imposing sanction on US firms that continue to do business with Iranian entities.
o Domestic crises in Venezuela.
• Strong global growth and hence sustained
world energy demand.
The increase in pump price was largely due to higher crude oil prices…
DEPARTMENT OF FINANCE 15
Date USD per barrel Jan 2017
TRAIN bill filed 53.37 May 2017
House passed TRAIN
49.91
Dec 2017 TRAIN law signed.
60.91
May 2018 73.49
… and the peso’s depreciation.
DEPARTMENT OF FINANCE 16
45 46 47 48 49 50 51 52 53
PHP and USD per liter
PHP/USD exchange rate
Source: Bloomberg
Date PHP/USD
Jan 2017
TRAIN bill filed 49.74 May 2017
House passed TRAIN
49.86
Dec 2017 TRAIN law signed.
50.30
May 2018 52.19
These have combined and led higher retail oil prices.
DEPARTMENT OF FINANCE 17
15 20 25 30 35 40 45 50 55 60 65
PHP per liter
Retail prices of gas and diesel
Gas (PHP per liter. retail), left Diesel (PHP per liter. retail), left
Sources: Bloomberg and DOE
The oil excise only contributed a fraction of the oil price increase (in PHP).
2.1 3.6 5.3 6.5
9.2 3.0
3.0 3.0
3.0 3.0
0 2 4 6 8 10 12 14
Jan 2018 Feb 2018 Mar 2018 Apr 2018 May 2018
PHP
Accounting for the increase in gas retail prices, YOY 2018, PHP
Crude, exch rate, price absorption, and unexplained Excise tax Source: DOE, Bloomberg and DOF s taff estimates
3.9 5.7 5.6
7.4 8.8
2.8
2.8 2.8
2.8 2.8
0 2 4 6 8 10 12 14
Jan 2018 Feb 2018 Mar 2018 Apr 2018 May 2018
PHP
Accounting for the increase in diesel retail prices, YOY 2018, PHP
Crude, exch rate, price absorption, and unexplained Excise tax Source: DOE, Bloomberg and DOF s taff estimates
For instance, in May 2018, the excise taxes for gas and diesel only accounted for about a fourth of the retail oil price increases.
DEPARTMENT OF FINANCE 19
41.6 54.8 63.9 68.7 75.6
58.4 45.2 36.1 31.3 24.4
0 20 40 60 80 100
Jan 2018 Feb 2018 Mar 2018 Apr 2018 May 2018
Percent
Accounting for the increase in gas retail prices, YOY 2018, percent
Crude, exch rate, price absorption, and unexplained Excise tax Source: DOE, Bloomberg and DOF s taff estimates
58.2 67.0 66.8 72.6 75.9
41.8 33.0 33.2 27.4 24.1
0 20 40 60 80 100
Jan 2018 Feb 2018 Mar 2018 Apr 2018 May 2018
Percent
Accounting for the increase in diesel retail prices, YOY 2018, percent
Crude, exch rate, price absorption, and unexplained Excise tax Source: DOE, Bloomberg and DOF s taff estimates
As more money goes to people’s pockets, prices tend to increase
with higher capacity to spend.
DEPARTMENT OF FINANCE 20
Increase in disposable income
Additional amount per month (PHP billion) Personal income tax reduction 12.0 Unconditional cash transfer (UCT) 2.0 Wages from more jobs in infrastructure/1 15.0
Free college tuition effect 3.5
Total 32.5
Note:
1/30 percent of the government infrastructure spending of PHP 50 billion is labor cost.
TRAIN, however, only contributed 0.4 percentage points to inflation.
DEPARTMENT OF FINANCE 21
Factor
Contribution to inflation (in percentage
points)
Actual inflation 4.6
Average inflation target /1 3.0
Excess over target 1.6
Due to TRAIN /2 0.4
Due to better tobacco excise compliance 0.1 Due to crude oil increase beyond target 0.5 Due to exchange rate beyond target 0.1 Due to rice supply issue and importation lags 0.2 Due to other factors, including demand-side
factors and unwarranted price increases
0.3
Notes:
1/ The original 2018 inflation target of 2 to 4 percent assumes crude oil price between 45 and 60 USD per barrel and exchange rate between 48 to 51 PHP to USD.
2/ DOF estimates TRAIN impact at 0.4 percentage points (ppt). NEDA estimate is 0.42 ppt, BSP is between 0.3 and 0.5 ppt, while DTI is 0.4 ppt. Note that 0.4 ppt is lower than 0.7 ppt originally estimated by DOF in June 2017 as crude oil price and the exchange rate were lower then and thus had a bigger effect on inflation.
Inflation is always a concern in the midst of high or low inflation
Months when inflation was included in top 3 concerns in Pulse Asia Survey since 2010
While inflation increased, hunger and self-rated poverty decreased
9/27/2016 DEPARTMENT OF FINANCE 25
0 10 20 30 40 50 60
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5
Apr Jun Sep Dec Mar Jun Sep Dec Mar
2016 2017 2018
SWS self-rated poverty and hunger, and inflation rate
Inflation rate (2012=100) (left ) Hunger (right) Self-rated poverty (right)
Source: PSA and SWS
Social mitigating measures in the General Appropriations Act 2018
DEPARTMENT OF FINANCE 26
TRAIN social
mitigating measure Line item Implementing
agency Amount
(PHP billions) Unconditional Cash Transfer
(UCT) Program “Tax Reform Cash
Transfer Project” Land Bank of the
Philippines (LBP) 24.5
Department of Social Welfare and Development (DSWD)
1.2
PUV Modernization “PUV Modernization –
Nationwide” Department of
Transportation (DOTr) 0.8
“Loan Facility for Public Utility Vehicle Modernization Project”
Land Bank of the
Philippines (LBP) 1.1
“Loan Facility for Public Utility Vehicle Modernization Project”
Development Bank of the
Philippines (DBP) 1.1
Unprogrammed
appropriations “Support for Infrastructure Projects and Social Programs”
Unprogrammed
Appropriations 1.0
Total 29.7
Other social mitigating measures upon implementation of social welfare card
• Social benefits card (national ID) to determine qualified beneficiaries
• Fuel vouchers to qualified franchise holders of Public Utility Jeepneys (PUJs)
• Fare discount from all public utility vehicles in the amount equivalent to ten percent (10%) of the authorized fare;
• Discounted purchase of National Food Authority (NFA) rice from accredited retail stores
• Free skills training under a program implemented by the Technical Skills and Development Authority (TESDA).
DEPARTMENT OF FINANCE 27
