A Radical's Nut

Ondoy victims in Pila, Laguna receive relief goods from volunteers of Bayan's Bayanihan Alay sa Sambayanan or BALSA (photo from Bulatlat.com)

The twin devastation brought by typhoons Ondoy and Pepeng hit the Philippines at a time when the country is still reeling from the impact of the global financial and economic crisis. According to the latest (as of Oct 16) consolidated report of the National Disaster Coordinating Council (NDCC), the total cost of damage from the two typhoons reached ₱21.29 billion. The cost of damage to agriculture accounted for 64.8% of the total, and infrastructure, 35.1%. About 7.43 million were affected in the country’s 12 regions, including Metro Manila. (See Table 1)

Initial estimates from the National Economic Development Authority (NEDA), meanwhile, claimed that the macroeconomic impact of the two typhoons is about 0.2% of the gross domestic product (GDP). This could be mitigated, according to NEDA, by remittances from overseas Filipino workers (OFWs) who would tend to send home more money because of emergencies and “will make up for the billions lost in devastating floods”.

Because of the need for additional spending for post-Ondoy and Pepeng rehabilitation and reconstruction, on top of the need to pump-prime the economy amid the global financial and economic crisis, the 2009 budget deficit could reach as much as ₱307.9 billion, according to the Department of Finance (DOF). There is no official figure yet on the actual amount needed for rehabilitation and reconstruction but Congress has already approved a ₱12-billion supplemental budget for the immediate needs of the typhoon victims.

In addition, a total of ₱32 billion spread over 10 years is needed to relocate more than half a million illegal settlers, including those occupying waterways in Metro Manila. Mrs. Arroyo has ordered the immediate relocation of families near waterways following the massive flooding caused by Ondoy.

Meanwhile, the Arroyo administration has also successfully raised $1 billion from the global bonds market which it said would be used for its reconstruction efforts in regions affected by Ondoy and Pepeng.

While government tends to downplay the effects of the recent typhoons on the economy, with NEDA pointing out that reconstruction will spur domestic growth, the costs are actually much higher considering the still unquantified short- and medium-term effects of losses in jobs and livelihood due to Ondoy and Pepeng, although independent think tank IBON Foundation, in an estimate, said that Ondoy alone would push at least 276,000 families in NCR, Calabarzon, and Central Luzon into “long-term poverty”.

Note also that official unemployment before the storms ravaged the country was pegged at 7.6% nationwide (National Statistics Office’s July 2009 Labor Force Survey), with the top three highest regional unemployment posted by the NCR (12.1%); Calabarzon (11.1%); and Central Luzon (9.9%) – the regions most affected by the typhoons. These regions account for 79.9% of the total number of permanently displaced workers due to economic reasons from Jan 2008 to Jun 2009 as well as 69.3% of the total number of families affected by Ondoy and Pepeng. (See Table 2) 

A community in Pasig City remains flooded days after tropical storm Ondoy hit Metro Manila and nearby provinces (photo from Bayan - NCR)

Malacañang admitted Thursday (Oct 1) that government’s calamity fund of ₱1 billion is in danger of being depleted. Thus, members of the Senate and the House of Representatives held an emergency meeting with some Cabinet officials and agreed to pass a ₱10-billion supplemental budget in the wake of Ondoy’s onslaught in Metro Manila and adjacent provinces last weekend (Sep 26-27).

The problem is where to source the money. Not surprisingly, Department of Finance (DOF) Secretary Margarito Teves announced that they will tap the global bond market again in order to raise funds for relief and rehabilitation of “Ondoy” victims. This would be the third round of global bond issuance for the Philippine government this year, after the $1.5-billion bond sale in January and the $750-million sold in July, and would come ahead of the scheduled Samurai bond issuance later in the year.

But instead of borrowing more which will only aggravate the country’s debt problems, the more sensible step would be for government to cancel debt payments to free up billions of pesos in public funds that can be used for disaster relief and rehabilitation in the immediate, and provide much needed social services in the medium and long-term.

Debt servicing, since the time of the dictator Ferdinand Marcos, has been siphoning valuable public resources from the country, with the current Arroyo administration paying out the biggest amount of public funds for debt servicing. Debt servicing (interest payments and principal amortization) under Mrs. Arroyo has been, on the average, more than 10% of the country’s gross domestic product (GDP) – higher than Aquino’s 8.1%, Ramos’s 6.8% and Estrada’s 6.6 percent.

Under its proposed national budget for 2010, the Arroyo administration will shell out a huge ₱746.18 billion for debt servicing covering interest payments and principal amortization. In 2009 and 2008, government spent ₱702.6 billion and ₱612.68 billion for debt servicing, respectively. These are huge amounts of money, with interest payments in 2010, for instance, eating up 22.1% of the national budget compared with housing’s 0.4%, health’s 2.5%, and education’s 15.3% – all of which will surely require more funds now because of Ondoy and other stronger typhoons expected to hit the country.

Is debt cancellation possible? Ecuador just did it earlier this year, with its President calling the country’s foreign debt “immoral”.

Considering the still unfolding humanitarian crisis that Ondoy has caused and threats of more super typhoons, the

Youth groups under the Serve the People Brigade join relief efforts for Ondoy victims in Laguna (photo from Kabataan party-list - Southern Tagalog)

 Philippines can justify its move to cancel debt servicing and attend to the more immediate needs of its people. On top of this is the long-standing issue that many of the country’s debts are considered odious and thus the people should not be burdened to pay for them.

Current debt-funded projects such as the multi-million dollar road projects being bankrolled by Asian Development Bank (ADB) and the Japan Bank for International Cooperation (JBIC), $100-million text book project of the World Bank, China’s $885.4-million South Luzon railways project, ADB’s $750-million power sector reform programs and projects, among others are tainted with irregularities and corruption and should be considered for debt cancellation.

While emergency grant assistance for disaster relief from foreign donors are welcome, debt cancellation should be a top option for the Philippines in terms of raising sufficient resources in a sustainable manner to deal with disasters and other immediate and basic needs of its people.

As an initial move, Congress must repeal the Marcosian automatic debt servicing rule as provided under the revised Administrative Code of 1987 and rechannel funds allocated to debt servicing in the 2010 national budget to social services and disaster relief and rehabilitation.

also published in Bulatlat.com

As expected, the revived proposal to impose a tax on text messaging is again controversial and widely opposed. What surprised some people perhaps are the strong statements from telecommunication companies (telcos). They called the plan “anti-poor”, “oppressive” and “one of the worst anti-consumer legislations ever made”.

Telcos, of course, are still reeling from the public relations beating they had from questionable charges, missing load and other abuses recently probed by the Senate. Thus some may think that telcos just hope to recover some publicity points by taking on an issue their customers strongly oppose. But Globe Telecom and Smart Communications are actually defending their business interests threatened by the proposal, which include their promotional bucket-priced short message service (SMS) plans that allow them to protect their market share and earn billions of pesos in profits.

Broad opposition

Nonetheless, the firm position of Globe and Smart against the text tax is a welcome development. They reinforced the broad opposition versus an onerous tax proposal repeatedly raised by Congress as well as Malacañang the last 7 or 8 years. Members of the Senate, led by self-styled consumer advocate Senate president Juan Ponce Enrile, have also spoken strongly against the text tax. Add the 2010 elections to the equation, some say, then it is almost certain that this plan will not materialize any time soon.

But proponents of the measure are adamant. The House ways and means committee led by Quezon Rep. Danilo Suarez and Ilocos Sur Rep. Eric Singson has promised to pass a law imposing a 5-centavo tax on SMS within the year. Some sort of an alternative bill is also being pushed by Sen. Richard Gordon reportedly supported by the DOF and NEDA. In Gordon’s version, the text tax is in the form of a 5-year levy on telcos’ profits on SMS. Malacañang has not asked its allies to drop the text tax though it set conditions for its support, namely no pass-on to users; telcos must pay; and revenues for education, health or computerization.

IMF pressure

The latest incarnation of the text tax (a consolidated version of Singson’s House Bill 6625 and Suarez’s House Resolution 282) comes in the context of an administration under pressure from the International Monetary Fund (IMF) to widen its revenue base. In its latest consultation with Philippine officials concluded last January 2009, the IMF Executive Board “suggested” that government raise tax collection effort, broaden revenue base and rationalize fiscal incentives. The IMF noted the still high level of public debt amid continuing need for a measured fiscal stimulus, and thus raised said proposals to provide government “more scope for fiscal easing and well-targeted pro-poor cash transfers”.

While no longer in debt with the IMF, the Philippines remains hostaged to it because its assessment of a country’s fiscal situation is used as a signal by foreign creditors and investors. A favorable review by the IMF means high “creditworthiness” for the debt-dependent economy. The IMF has exercised control over the country’s fiscal policies through regular consultations between its Executive Board and Filipino officials such as the one they concluded in January.

Incidentally, it was the IMF that first openly pushed the text tax idea in 2002 to address government’s burgeoning budget deficit. But it was hugely unpopular and promptly rebuffed by some lawmakers. Even so, various text tax and related bills have been filed in Congress since then. Finance and Trade officials have also raised the proposal at various times and circumstances – at one point to pressure the bicameral committee to fast track the also infamous Reformed Value-Added Tax (RVAT) law in 2005 and in some instances as trial balloon on public opinion. The National Tax Research Center (NTRC) has conducted a study as well on the text tax in 2007 to weigh potential revenues and impact on consumers.

Lobby vs. sin taxes

Due to its unpopularity, the text tax could not be found in official policy pronouncements of Mrs. Arroyo. In her July State of the Nation Address (SONA), for instance, Mrs. Arroyo has categorically asked Congress, to further restructure so-called “sin taxes”, which unlike the text tax does not invite loud public outcry. During its January consultation with IMF officials, Arroyo officials promised to pass a law imposing separate uniform tax rates for alcoholic drinks and cigarette products.

But apparently, Malacañang and Congress have given in to the strong lobby of local manufacturers of sin products, who reportedly sought a meeting with Mrs. Arroyo in her Forbes Park (Makati) home to lobby against the proposal. The coming 2010 elections could have also played a role – with known huge election campaign contributors Lucio Tan (who owns Asia Brewery Inc and Fortune Tobacco) and Danding Cojuangco (who own San Miguel Corp) as among the stakeholders to be affected by sin taxes reform. There is also strong opposition from the so-called Northern Luzon bloc, or congressmen from the country’s tobacco-producing region.

While openly asking for sin taxes reform, Mrs. Arroyo has also been discreetly pushing for a text tax law, which in March she described as having a rate of between “5 to 10 centavos” and with collections earmarked for “education”. Note that these are the same salient provisions of current House proposal for a text tax. After Mrs. Arroyo’s SONA, sin taxes are no longer in the agenda of the Malacañang-controlled House ways and means committee. Its chairman Antique Rep. Exequiel Javier has already declared that the text tax is more doable than the sin taxes reform.

Do we need new taxes?

For the IMF, what is important is that government be able to widen its revenue base and manage the national budget deficit, which is expected to balloon to ₱250 billion this year. The IMF and government hope to reduce this to ₱233.4 billion in 2010 through new taxes. Whether the new taxes will come from our cellphones or our beer, the intention is to assure creditors that the Philippine government, which presently has a debt of ₱4.23 trillion, will continue to be a viable borrower.

But do we really need new taxes when government losses from anomalous contracts in infrastructure projects alone such as the botched NBN-ZTE broadband project reach at least ₱30 billion a year and nearly approximate the projected ₱36 billion in potential annual revenues from the text tax?

Consider also that even without modifying our existing commitments with the World Trade Organization (WTO) and other free trade deals, the Philippines can hike tariffs across the board and raise billions of pesos in revenues. Note that due to continuing trade liberalization, total collections from tariffs on imported goods and services under Arroyo now only account for 2.8% of total revenues and gross domestic product (GDP), compared to around 4.5% for most of the 1990s. In the first half of 2009 alone, we are giving up almost ₱117 million in potential revenues per month due to lower duties.

Government claims that revenues from the text tax will be used for education. In a policy regime of automatic debt servicing, this is lip service, to say the least. In the proposed 2010 national budget, for instance, the Arroyo administration is allocating a per capita education budget of ₱2,502, while each Filipino will have a debt servicing burden of ₱7,944. For health, Malacañang is allocating ₱402 for 2010 and ₱58 for housing. Thus, this administration which always uses social services to defend its oppressive taxes is allocating a combined budget for education, health and housing with an amount that is merely 37% of what it intends to pay its creditors.

And finally, how can a regime whose highest officials dined for $35,000 (ostensibly using taxpayers’ money) in two nights during a US junket justify another onerous tax on a people already battered by high prices, low wages and job scarcity?

By the way, text tax proponent Suarez claimed to have paid for one of those dinners.

World Bank logo

The World Bank, in its latest quarterly report on the Philippines, recently proposed that government increase the current excise tax of P4.35 per liter imposed on gasoline products to ensure a quality implementation of Arroyo’s fiscal stimulus plan and address a ballooning budget gap.

According to the multilateral lending institution, its proposal would “improve the progressivity of the tax system as petroleum products are disproportionately consumed by the richer citizens”. In other words, it is acceptable to hike current taxes imposed on gasoline products because the poor will not be hurt.

The World Bank, a global institution controlled by the US and other rich countries, has become increasingly discredited and notorious through the years. For a brief discussion on how it works to intensify global poverty, as told by a former World Bank “insider” – its former Chief Economist Joseph Stiglitz – watch the short video below.

With just a little over two weeks before Mrs. Gloria Arroyo deliver her supposedly farewell State of the Nation Address (SONA), I expected Malacañang to issue an outright rejection of the World Bank proposal. Severely wanting in favorable public opinion and amid persistent allegations of overpriced petroleum products, a categorical “no” from government would have been at least a positive public relations move.

But Finance secretary Margarito Teves, while acknowledging that the World Bank proposal is untimely, said that his department is seriously studying the suggestion and implied that if the World Bank can convince them, they might increase the gasoline excise tax, albeit in a proper time. Maybe after SONA?

There are two points I wish to raise here. One, petroleum products in the country are already artificially and unjustly high due to onerous taxes such as the 12% value added tax and overpricing especially by the Big Three (Petron, Shell, and Chevron) oil cartel. Further increasing gasoline prices through a higher excise tax will further aggravate the injustice and abuse that consumers already suffer.

Two, it is not true that the poor will not be hurt. It has been the recurring argument of Malacañang in its efforts to justify the continued imposition of the 12% VAT (which incidentally, Arroyo worked hard to increase from 10% to the current 12% starting in November 2005). But studies we made at Bayan point to the contrary. For instance, in the case of gasoline products, private car owners are not the only ones who will bear the impact of an excise tax hike. Tricycle drivers and small fishers using motorized bancas who also use gasoline products for their livelihood will be hurt more.

These people barely earn enough to meet the daily needs of their families and every centavo that will be added to their expenses will certainly make their daily existence much harder. At present, almost 600,000 tricycle drivers nationwide directly pay government P9.42 per liter in taxes on unleaded gasoline, representing the 12% VAT and the current excise tax of P4.35 per liter. Such taxes are already burdensome for them as they consume an average of 4 liters a day and thus pay government almost P38 daily in taxes.

Similarly, some 700,000 small fishers using motorized bancas directly pay government P9.10 per liter in taxes on regular gasoline, representing the VAT and excise tax. Per fishing trip, a fisher consumes as much as 10 liters and thus pay government almost P91 daily in taxes.

The World Bank, together with its twin the International Monetary Fund (IMF), has significantly shaped the country’s fiscal policies over the decades. It has strongly supported and pushed for more and higher taxes including the VAT to ensure that government would be able to service its debt obligations. At the same time, the World Bank has firmly opposed policy reforms to control the prices of basic goods and services such as the repeal of the Oil Deregulation Law. It has pushed for lower government spending on social services and promoted the privatization and commercialization of such services.

The people must oppose this latest policy dictate (cloaked as “proposal”) of the World Bank. The burden of addressing the budget gap and raising tax revenues should not fall on the shoulders of the poor. The 12% VAT on oil products must be scrapped and additional revenues should be generated through efficient tax collection, curbing corruption and smuggling, arresting the biggest tax evaders which are the corporations, and re-imposing the eliminated or reduced tariffs on imported goods.

First published in Paninindigan, Ang Pahayagan ng Bayan, Jul-Sep 2008

In her latest State of the Nation Address (SONA), Gloria Arroyo spent a considerable portion of her speech defending the value added tax (VAT), calling it the means for Filipinos to ride out the world food and energy crisis. The speech illustrates how defensive Malacañang is over the unpopular and regressive tax, which various sectors and some lawmakers want scrapped as food and fuel prices escalate. It aggressively hypes the so-called Katas ng VAT program to justify the VAT and show that it provides concrete and direct benefits for the poor.

Arroyo is forced to uphold the VAT in particular on oil and power despite growing clamor against it as the International Monetary Fund (IMF) and the World Bank have both warned the government against cancelling or even reducing the VAT. Malacañang could not afford to let go of what the Finance department described as the “biggest tax measure since the birth of the Republic”.

Indeed, Arroyo’s VAT reform agenda, realized through Republic Act (RA) 9337 that increased from 10 to 12 percent the VAT rate and further expanded to include oil and power among others, have notably increased government’s tax revenues. Total RVAT (reformed VAT under RA 9337) collections from 2006 to the first half of 2008 have already reached P219.08 billion. Of this amount, oil accounted for P122.4 billion or almost 56 percent while power, P24.04 billion or just below 11 percent. For the second half of 2008, government expects to collect P51.6 billion in VAT on oil and P8.4 billion from power.

Malacañang is determined to protect these revenues to maintain its good standing among the foreign creditors, who get their signal from the IMF’s assessment of a country’s fiscal position. In 2007, no less than the former managing director of the IMF hailed the Philippine government for its fiscal progress and described the VAT as Arroyo’s “central achievement”. Days before the SONA, the IMF strongly warned the Philippines of the adverse fiscal effects of tax cuts in response to the run-up of oil prices.

In her last SONA, Arroyo went as far as to say that scrapping the VAT will only benefit the non-poor (i.e. may kaya) who supposedly consume “84 percent of oil and 90 percent of power”. Thus, the poor according to the government, do not shoulder a heavy burden of the VAT but even gain from it through programs such as the P7.5-billion Katas ng VAT. The Finance department, however, later said that the poor (i.e. low-income) refers to those earning less than P80,000 a year – a ridiculously low standard to measure poverty.

Nonetheless, the Katas program has been widely discredited as its various components merely offer one-time dole-outs such as the P500-subsidy for small power users. Its frivolity was fully exposed when the Budget department announced that it is no longer funding the program next year. It cited the falling prices of petroleum for its decision and said that the program will only resume if global oil prices top $200 per barrel next year. Such is the character of the Katas program, which the Arroyo administration hyped so much to counter calls to scrap the VAT on oil and power. At its core, it is an empty publicity and stopgap measure of an embattled government scrambling to justify its anti-poor policies.

No matter how Malacañang packages the VAT as a pro-people fiscal measure, it still could not conceal how the regressive tax puts undue additional burden on the consumers. In the case of oil, the VAT has become even more unjustifiable as pump prices soared to record levels, with diesel peaking at P60 per liter in July. Though oil prices have eased in the last couple of weeks, VAT still comprises between P6 to 7 per liter, a significant amount for ordinary income earners especially in these times of double-digit inflation.

Arroyo of course also claims that with increased revenues, there are now more funds for the poor – a blatant lie easily exposed by official records. Bureau of Treasury data, for instance, show that from 2001 to 2005, the annual allocation for education was 15.6 percent of the national budget; health, 1.7 percent; housing, 0.2 percent; and debt servicing (interest), 27.8 percent. Comparing these levels with the RVAT period (2006-2007), the share of education even fell by 1.4 percentage points and health by 0.1, while housing slightly increased by 0.2. Interest payments as a portion of the national budget, in contrast, rose by 1.2 percentage points.

But Arroyo and her economic managers could not care less, obsessed as they are to achieve fiscal stability and keep the foreign loans flowing. As of first quarter 2008, the country’s foreign debt stood at $54.6 billion, up from $54 billion in the same period a year ago. Government expects to incur an additional foreign debt of $2.3 billion for the whole year, and another $2.5 billion in 2009. Consequently, Malacañang will allocate increasing amounts to pay for these loans – P636.1 billion this year and P681.2 billion next year.

What’s in store for Arroyo and her cabal from these debts? Well, think of the botched NBN-ZTE, the Northrail and Southrail, and other projects funded by foreign debt wherein multimillion dollar tongpats abound. This is how the vicious onerous taxes – foreign debt – corruption cycle milk the Filipino people dry.

This vicious cycle must end and it is only possible through direct political actions by the people. The series of protests against the VAT in the past months and the favorable public opinion it has created have obviously helped to compel the House ways and means committee to propose the targeted scrapping of the VAT on power. Of course, this is not enough and thus, the people’s campaign to remove the VAT on oil and power must continue and intensify. (END)