On rising government bond rates, US public debt and war

Positive economic news is hard to find these days. Nonetheless I consider these reports in BusinessWorld as positive news, all published on March 17: “Slightly positive business sentiment signals ‘cautious optimism’ in the Philippines,” “House approves bill allowing Marcos to suspend or cut excise tax on fuel,” “Senate approves bill authorizing President to temporarily reduce or freeze fuel excise,” and “PHL in talks with China to obtain more fertilizer.”

I believe that the government should cut the various oil taxes under the Tax Reform for Acceleration and Inclusion (TRAIN) Act of 2017 (RA 10963), implemented in 2018-2020, which made the tax on diesel go from zero to P6/liter, gasoline from P4 to P10/liter, LPG from zero to P3/kilo, and so on.

Sure, revenue will decline slightly, but government has windfall revenues from higher VAT collection on oil products — while the VAT on P60/liter diesel will garner it P6.60/liter, VAT on P90/liter diesel will give the government P10.80/liter. That will help compensate for the temporary removal of the diesel excise tax of P6/liter.

Another measure is to have spending cuts on certain sectors and agencies, like climate and war-mongering agencies and departments.

Other sectors in the Philippines oppose an oil tax cut and prefer creating or expanding subsidies for public transportation. I do not support this because it creates sectoral favoritism. Tractors, harvesters, irrigation pumps, trucks, fishing boats, and other agri-fishery machinery also need subsidies and the government will ignore them under the current transportation subsidy scheme. If the government should subsidize, it should subsidize all or none at all. An oil tax cut coupled with a spending and subsidy cut somewhere is still the easiest to administer, and would be most fair to all.

With these moves for either higher spending or cutting taxes, the yields on Philippine 10-year government bonds have spiked, from 5.92% on Feb. 27 (the day before Israel and the US attacked Iran) to 6.73% on March 17 — a 13.7% jump. Thailand has seen a higher expansion of 27% as it plans a huge oil subsidy via its Oil Fuel Fund. In Europe, the largest increase in 10-year bonds was that of Switzerland, from 0.20% to 0.33% yield (see Table 1).

Our outstanding public debt in 2025 was P18.05 trillion. Even if we do not borrow more in 2026, at a 6.7% average interest rate our public debt will rise to P19.26 trillion by end-2026 — the P1.21 trillion increase represents interest payment alone.

Hence, the need to confront the bloated spending problem. Tax revenues keep rising, but any gain or increase is quickly dissipated by increases in public spending. The various agencies, bureaucracies, and legislators have very fertile imaginations when it comes to expanding spending. We also need to do large-scale privatization of some government assets and corporations, like the Agus-Pulangi hydro plants in Mindanao.

We also need to embrace hydrocarbons and fossil fuels, not demonize them. We should encourage more exploration and development of indigenous oil, gas, and coal, and stop these “net zero” and “decarbonization” moves. The global energy transition now is from Middle East fossil fuels to fossil fuels from Russia, North America, Indonesia, etc.

Meanwhile, the US under President Donald Trump has gone crazy, embroiled in various wars, both actual and in preparation for. They have had a proxy war against Russia in Ukraine for more than four years now. They are engaged in a Middle East-wide war against Iran, and they are preparing for war against China over Taiwan and the South China Sea.

Wars are never cheap, they are costly, both in public finance, people’s lives, and property damage. I checked the numbers of US public debt — it is getting worse.

During the four years of the Biden administration, US public debt was rising by $2.12 trillion/year, or an average of $5.8 billion/day. During Trump’s first year, the debt increased by $2.25 trillion or $6.2 billion/day.

During war preparations against Iran, from Jan. 21 to Feb. 27, US debt was rising by $8.2 billion/day. Since the war started, debt has been rising by $13.1 billion/day. So, estimates of $1 billion/day spent on the Iran war alone may be understated (see Table 2).

Ending the current big war in the Middle East is the logical thing to do. But the US-Israel tandem is already embroiled, and Iran is already heavily damaged and will seek prolonged revenge. Then there has been some damage to seven Middle East countries that host US military bases or facilities.

The Philippines, as Chair of the ASEAN in 2026, should play a major role in pursuing peace and prosperity, at least in East Asia. It should focus more on trade and commerce, investments and tourism, and not war mongering. Peace and prosperity, not war and destruction.

Bienvenido S. Oplas, Jr. is the president of Bienvenido S. Oplas, Jr. Research Consultancy Services, and Minimal Government Thinkers. He is an international fellow of the Tholos Foundation.

minimalgovernment@gmail.com