Computations show that reducing tariffs on imported products, which is one form of lessening regulation, "would lead to the best consequences and would result into a lesser negative impact on the whole," Caesar B. Cororaton, PIDS senior research fellow said in a report.
Cororaton said lowering tariffs on petroleum products will result in a lower reduction of gross domestic product (GDP), lower increase in prices, lower negative implications on the government budget balance, lower income inequality effects, and lower negative welfare effects.
He arrived at the position using the so-called Philippine computable general equilibrium model (PCGEM). He said increased prices of local petroleum products was a direct result of world oil prices rising by nearly 200 percent and the peso-dollar exchange rate depreciating by 20 percent since the start of the year.
The PIDS report said "the temporary reduction of the three-percent tariff rate on oil products maybe the most direct way of partially minimizing the adverse impact on the overall economy and people’s welfare of the oil price increases."
According to the PIDS study, revenues earned from tariffs increased, what with the nearly 200-percent increase in crude oil and refined prices. Thus, government actually earned a "windfall profit," the study pointed out.
"The windfall profits are large enough that even if the government considers this reduction of tariffs in oil products, the government earnings from such source will still be positive. With a lower tariff rate on oil products, the country’s level of oil imports might not drop as drastically as it had when the world crude prices increased," the PIDS study noted.
It added: "And because the level of oil supply in terms of imports will not suffer that much, the domestic price of oil products would not perhaps go up as much as it did and will. The chain reaction of this mechanism is such that the adverse consequential effects on the general price levels, incomes, employment and people’s overall welfare with thus not be that much either."