It’s becoming increasingly apparent that conflict in the Middle East won’t go away any time soon.

And just like past oil price shocks, this new war has generated the same familiar demands here at home. Suspend excise taxes, bring back tighter government control over oil prices, stop deregulation, protect consumers at all costs.

This is understandable. Higher oil prices hurt and like clockwork they raise transport costs, push up food prices, squeeze household budgets, and complicate inflation management. Government economists are already seeing scenarios of inflation going as high as 7.5%.

Two ideas in particular are fast gaining traction. First, there’s a call to suspend or remove excise taxes on petroleum products. Both chambers of Congress are fast-tracking a bill that will allow President Ferdinand Marcos Jr. to suspend excise taxes on petroleum during emergencies such as this (so we don’t need to wait for a new law every time). In the House of Representatives, this bill is being sponsored by the President’s son, Sandro, and Speaker Faustino “Bodjie” Dy.

The second proposal is to regulate oil prices. Many people are hankering for the olden times of oil regulation, as if it were a lost age of stability and state competence, and also blaming our current ills on the oil deregulation law that was passed in 1998.

Are fuel taxes regressive?

Let’s start with fuel excise taxes.

Yes, the government can suspend or reduce them in an emergency. There is nothing inherently absurd about that. A temporary tax cut lowers pump prices quickly and visibly. It’s easy to explain, straightforward to implement, and politically popular.

But we should also be honest about what it actually does.

A broad excise tax suspension is effectively a blunt subsidy. It benefits anyone who buys fuel, regardless of need. And because higher-income and middle-class households consume more fuel directly, they also capture more of the benefit.

Households with private cars, multiple vehicles, or higher transport spending costs gain more in absolute terms than poorer households that rely on public transport or consume relatively little gasoline or diesel directly. In short, a large share of that relief will go to households that are not the most economically vulnerable.

In economics parlance, excise taxes on petroleum are “marginal progressive” rather than regressive. Past studies of the 2017 TRAIN Law (which also hiked petroleum excise taxes) show exactly this.

The big trade-off

The forgone revenues are nothing to laugh at. The Department of Finance said that we might lose as much as P136 billion in revenues if fuel excise taxes are suspended starting in May, but the Bureau of Customs said the forgone revenues could be as large as P300 billion — almost as large as the country’s revenues in a month, using 2025 figures.

And here’s the rub: every peso the government gives up through tax suspension is a peso that cannot be spent elsewhere. That revenue could have gone to cash transfers, healthcare, education, infrastructure, or debt reduction.

So the relevant question is not whether cutting excise taxes gives relief, but whether it is the best use of scarce fiscal resources. Senator Sherwin Gatchalian is the only lawmaker so far that I heard openly using the word ”trade-off.” There’s no such thing as a free lunch.

Yet another reason to worry about “temporary” tax relief is that it tends to be politically sticky. Once taxes are cut, bringing them back can be difficult even after prices stabilize. Without discipline, such relief might inadvertently turn into a long-term erosion of revenue. What if the US–Iran war lasts for years, even reaching the run-up to the 2028 elections? Will the Marcos administration be so willing to collect again the excise taxes it removed or suspended?

The state of the public coffers is at stake. Finance Secretary Frederick Go is confident the administration will collect at least a trillion pesos in revenues this year to abate the deficit and debt figures. But with many efforts to cut taxes coming from politicians (including the fuel excise tax suspension and travel tax abolition), good luck with that.

Make transfers targeted

Higher petroleum prices tend to seep through the rest of the economy, and it is these second-round effects that tend to hurt the poor. If the real objective is to protect those most exposed to rising fuel prices, then targeted transfers are the much more sensible option.

Public utility vehicle drivers, farmers, fisherfolk, delivery workers, and low-income households are much more vulnerable to oil shocks than the average middle-class motorist. These are the groups that should be prioritized through direct cash support, temporary operating subsidies, fuel vouchers, or other forms of calibrated assistance.

That kind of targeting is less dramatic than a headline-grabbing tax suspension, and also administratively harder. But it is better economics and public policy. It channels support where the welfare loss is greatest instead of scattering subsidies broadly, including to people (like the middle class and the rich) who can absorb the shock more easily.

Oil deregulation is the enemy?

The second popular proposal is the call to reverse oil deregulation.

This argument almost always arises whenever pump prices rise sharply. The logic is: if deregulation means people suffer market-driven price increases, then why not return to stronger state control? Why not revive some version of the old regime, when government supposedly had the ability to stabilize prices and shield consumers from global volatility?

We need to go back in time and learn our history.

The pre-deregulation era, especially under the Oil Price Stabilization Fund or OPSF, did not really solve the core problem. Oil shocks did not disappear, but were deferred, obscured, or shifted into fiscal and quasi-fiscal burdens. Consumers might have seen less volatility at the pump for a time, but down the line somebody still paid for all that, whether through public liabilities, distorted incentives, or poorly timed price adjustments.

That system was not at all a model of effective state protection. Instead, it was full of unintended consequences.

You see, when governments suppress or smooth price signals too aggressively, consumers and firms have less reason to conserve fuel or adjust behavior. In addition, when pricing becomes a matter of state discretion, lobbying and rent-seeking follow, transparency suffers, and fiscal discipline weakens.

Many people have forgotten the old state of affairs. The state cannot simply legislate away imported oil costs. If world prices rise, a regulated system may delay the pain, but often at the cost of creating larger distortions later on.

In a report by economist Nimfa Mendoza, my former professor at the University of the Philippines School of Economics, she said the OPSF was “a major contributor to the government deficit and public debt, having received P17.6 billion (US$ 671 million, 1996 dollars) in subsidies from 1990 to 1997.” It was scrapped as part of oil deregulation, but its losses had to be shouldered by the national government for some time. You can read the full report here.

This is why the case for deregulation still stands. It recognizes that global oil prices are fundamentally beyond Philippine control, and that pretending otherwise usually creates worse problems. Deregulation allows prices to adjust transparently, reduces the fiscal exposure of the state, and avoids the illusion that politicians can sustainably micromanage a globally traded commodity without creating distortions.

By no means does that mean that government should do nothing. A deregulated oil sector still requires an active state: one that monitors competition among players in the sector, averts collusion, prepares for supply disruptions, and protects vulnerable sectors through targeted interventions. In other words, government should regulate conduct of players in the industry, not prices.

For the long term, if policymakers really want to reduce the country’s vulnerability to oil shocks, the agenda lies elsewhere: better public transport, more efficient logistics, stronger social protection systems, less dependence on cars and private vehicles, and a more diversified energy base.

Those are harder reforms, but they do more to improve resilience than repeatedly reaching for crude and expensive emergency measures whenever conflict erupts abroad.

All in all, the US-Iran conflict may justify temporary action. But it should not be used as an excuse to unearth or relive the bad ideas and policies of the past. – 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).

Click here for other In This Economy with JC Punongbayan articles.