Yes to Electrical Subsidy, Not to FDIs Supplying Filipinos with More Electricity?

It's really hot right now, isn't it? El Niño is approaching, yet haven't Filipinos learned anything? Back in 2024, I actually wrote an essay asking if one would rather die from heatstroke or thirst, in the name of Pinoy Pride economics. I could be getting more aggressive than usual right now. It was El Niño when I wrote the post I previously linked. Now, it's time to think about the call to subsidize electricity for the lower class. As good as it might sound on paper, however, the big problem is that the middle class and above aren't an endless wallet. 

Why increasing tax rates to subsidize electricity may be a short-term solution

I was even thinking if critics of the TRAIN law aren't complaining about excise taxes but the lower tax rates. Did people like those in the Makabayan Bloc and those who support them complain that by lowering tax rates, there's not enough taxes to support the electrical subsidy?

Unfortunately, the Philippines' electrical sector is still stuck with the 40% when it comes to the operation of public facilities. This has to be utterly stupid because, as said, the 60-40 arrangement is practically overpriced rent. It's not that the Philippines prohibits FDI, but the arrangements are discouraging. The big proposal can be, "Why don't we increase taxes so the middle class and the poor can be helped with electricity?" However, this contests common sense. It's because when taxes are overly high, we get the Laffer curve effect as defined by Investopedia:

The Interplay Between Tax Rates and Revenue on the Laffer Curve 

The Laffer curve follows certain logic because tax revenue does not always increase whenever the tax rate increases. Of course, the government collects no income when the tax rate is 0% but imagine a situation where the government collects 100% tax revenue. All earnings would then be remitted to the government so there would be no incentive for workers to remain employed.

Total revenue declines as shown by the downward part of the curve, even when the tax rate is highest on the x-axis. It may seem counterintuitive but tax revenue is most often not maximized when tax rates are highest due to extenuating circumstances.

The Laffer curve's theory is that it's more efficient and ideal for a government to set a rate somewhere between 0% and 100%. This may seem simplistic but finding the exact point where total revenue is maximized is subject to great political debate. The graphical depiction above shows it somewhere in the middle but the true ideal rate can be skewed in one direction or the other. Different circumstances for different countries will also yield different outcomes.

In short, if the Philippines keeps raising tax rates to support the poor, ultimately, the consequence is uncontrollable tax evasion. But not only that, there will be more consequences, such as:

1. Businesses will stop trying to achieve better if the government keeps taking away the money for "the sake of the poor". This will result in stagnation of services and workers who will no longer want to work harder. This, in turn, will cause workers to stop working and stop getting better working conditions, because happy workers make more sustainable profits. 
2. When the poor keep getting subsidies for basic needs, then the poor will stop working smarter to improve their conditions. 
3. Businesses may start opening offshore accounts instead, where they can make profits without being taxed more. Yes, I might even say that businesses may fly to either Malaysia or Singapore, or even Communist Vietnam, to name a few. This means that the taxes will go to other countries because the tax rates in the Philippines have become abnormally high.

Why is allowing electricity to own 100% of their shares, is the way to go

This is another area where the Philippines loses to Communist Vietnam again, for the nth time. If we look at Vietnam's ownership restrictions, the advantages it has over the Philippines are these. First, the Vietnamese ownership restrictions aren't hardcoded in the Vietnamese constitution. Second, Vietnam has liberated so many sectors, and that includes electricity. Just think that Vietnam, a Communist country, chose to defy Venezuela's policies and used Doi Moi. 

Whether we want to admit it or not, no amount of insults will ever change the laws of supply and demand. Post-unification Vietnam tried to run itself with the same and it suffered. The difference came because Vietnam chose Doi Moi.  The Oracle Net Suite (and I expect people to just bash my sources as "just capitalist black propaganda):

Law of Supply and Demand Explained 

The law of supply and demand describes how the relationship between supply and demand affects prices. If a supplier wants more money than the customer is willing to pay, items will most likely stay on the shelf. If the price is set too low, customers will be eager to buy the items, but each item will be less profitable. The law of supply and demand is based on the interaction between two separate economic laws: the law of supply and the law of demand. Here's how they work.

The Law of Supply. 

The law of supply predicts a positive relationship between pricing and supply. As prices of goods or services rise, suppliers increase the amount they produce — as long as the revenue generated by each additional unit they produce is greater than the cost of producing it. Seeing a greater potential for profits, new suppliers may also enter the market. For example, prices of lithium and other metals used in batteries have soared as sales of electric vehicles have increased. That has encouraged mining companies to explore new sources of lithium and expand production at existing mines in order to increase the supply and generate higher profits.

The law of supply can also operate on a local scale. Let's say a well-known musician is coming to town. Anticipating a huge demand for tickets, promoters aim to maximize the supply by booking the biggest venue possible and offering as many tickets as they can, at high prices. As the supply of tickets runs out, the price of secondhand tickets rises — and so does the supply — as casual fans who bought tickets at the list price see the opportunity to resell them at a higher price. As a result, they enter the market as new suppliers.

The Law of Demand. 

The law of demand says that rising prices reduce demand. So as prices rise, customers buy less. That's particularly true if they can substitute cheaper goods. When the famous musician comes to town, not everyone may be able to afford a ticket even if they'd like to go. So, if the theater sets prices too high, fewer people will decide it's a worthwhile purchase, and the show organizers will be left with empty seats. Fans who want to resell their tickets may need to lower their asking price. Some people may decide to see another artist instead, if those tickets are cheaper.

The Law of Supply and Demand. 

The price where supply and demand meet is known as the equilibrium price. At that price point, suppliers produce just enough of a good or service to satisfy demand, and everyone who wants to purchase the product can do so. In practice, of course, balancing supply and demand is more complex. As supply and demand fluctuate, the equilibrium price can vary over time. Furthermore, the law of supply and demand assumes that all other factors that can affect pricing remain constant. In reality, that's often not the case. For example, fluctuating production costs or supply chain problems can have a big impact on pricing.

Why Is the Law of Supply and Demand Important? 

Business success in any competitive market depends on accurately assessing supply and demand. Every company that launches a new product needs to determine how much of the product to make and how much to charge. A business that manufactures too much of a product or sets prices higher than customers will pay can easily find itself left with products that don't sell and become dead stock. On the other hand, understocking or setting prices too low reduces profits and can drive away customers who can't wait for backorders to be fulfilled. Demand forecasting can help businesses determine the optimal supply level and find the equilibrium price — the price at which the supply just meets customer demand.

The same goes for electricity. Why is the electricity expensive and scarce? It's still subjected ot the law of supply and demand. If the Philippines gets rid of the 40% limit for electricity providers, we can expect the prices to go lower. It's because when the supply of electricity increases, the demand naturally goes down. The demand is higher right now because the supply is lower. It also takes more effort for a few electrical companies to provide electricity throughout the Philippines. That means the operational costs will naturally need to increase. However, if there were more electrical companies, the bottleneck would be removed, leading to filling in the gaps, causing demand to lower and supply to increase. That is how prices should go up and down, not legislation that defies economics like Venezuela did.