Business World
Introspective
If the SONA had a theme, it would be to end what the President called the culture of entitlement in the country, as symbolized by the wang-wang (a word mentioned 11 times in the report) - notoriously used by government officials to bypass traffic - and to put in its place a new system of meritocracy.
Judged solely as a political document intended to inspire and inform his constituents about his accomplishments, the President's SONA must be counted a success. It was written in Pilipino, spoken with confidence, and mostly adhered to issues that resonate strongly with the broad public, such as corruption, poverty, security, and social services programs.
As a document that lays down clearly the economic, political, and legislative agenda of the current administration - as some hoped it would - it is notable for its many omissions. The President rather referred listeners to the proposed budget for next year, submitted the day after the SONA, for a more comprehensive plan for the coming year. [One could also refer to the Philippine Development Plan 2011-2016 (http://devplan.neda.gov.ph/http://devplan.neda.gov.ph/) originally made public in May.]
The SONA made no explicit mention of Public-Private Partnership (PPP) projects, after touting them as the lynchpin of the government's ambitious investment program in the first SONA. The nearest mention of the PPP was when the President talked about the need for all projects to have clear work programs and to undergo transparent bidding. This is perhaps understandable after the huge hype that followed PPP after the first SONA and the delays currently being faced by the scheme. The omission may be viewed as the administration's means of managing expectations. Finance Secretary Cesar Purisima has been quoted as saying that he expects the economy to follow a J-curve growth path, with growth first dipping as solid foundations are being laid, and then to pick up and be sustained afterward.
The SONA was also quiet about tax policy reforms and fiscal sustainability, apart from an admonition to the self-employed and professionals to pay the correct amount of taxes, and the vow to convict and jail tax evaders. The implicit assumption appears to be that improvements in collections, as a result of taxpayers toeing the line, a more streamlined system (e.g., better cross-checking of records within government), and better use of available funds (e.g., PAGCOR, Malampaya), will be sufficient to ensure fiscal sustainability without raising new taxes. This remains to be seen.
For the first four months of the year, tax revenue collections grew by 11% compared to last year. But given inflation and economic growth, this hardly made a dent on the tax effort ratio - estimated at less than 12% based on first quarter figures (and using the revised GDP numbers). Longer- term, once the government starts catching up to its spending program (currently slowed down by governance reforms), this may pose a problem and may affect public infrastructure investment and social spending, including plans for universal health care.
On the other hand, House of Representative Speaker Feliciano Belmonte has said, post-SONA, that the House Leadership will act with haste on fiscal measures aimed at shoring up government revenues, including the rationalization of fiscal incentives, review of VAT exemptions, and the restructuring of excise taxes on tobacco and alcohol. It may be that the administration's strategy is to push for tax measures behind the scenes and not to refer to them as new taxes. In the past, tax reforms were only achieved through strong sponsorship by the incumbent President (as was the case in the terms of President Ramos and President Arroyo). It will be interesting to see whether the current strategy, if it is indeed the strategy, will succeed, especially where the tax system has been characterized as a leaky pail that may need to be replaced, rather than simply plugged.
On agriculture, the President may be setting himself too lofty a goal by aiming for rice self-sufficiency within his term. Analysts have noted that the increase in rice production so far this year is mainly due to an increase in area planted and favorable weather conditions compared to last year. Given the fickleness of weather and the country's robust population growth, zero rice importation appears nearly unachievable in the near term. And even if achievable, rice self sufficiency may be expensive and sub- optimal from a budget point of view. The government's own Development Plan acknowledges that in terms of land productivity in rice, the country trails Vietnam, Indonesia, and Malaysia.
The saber-less rattling gesture directed at China is intriguing but may be potentially costly, depending on how China perceives it and reacts to it. Will China look at it as mere political posturing? Could it have an impact on tourism and investments from, and trade with China? The buildup in military hardware necessary to lend a sliver of credibility to the gesture could also be financially steep.
Underlying the two SONAs of President Aquino is a clear and simple framework. End the culture of entitlement and corruption and this will lead to better use of public funds and an increase in investor confidence. In turn, this will translate to the improvement of physical infrastructure that will enhance economic growth. Enhanced growth will create jobs and generate the revenues that will finance the social services to ensure no one is left behind.
One may argue, and many have, that this framework is overly simplistic, that far more than a strong anti-corruption thrust is needed to propel growth. One could also easily quibble about the achievements reported in the SONA. According to Social Weather Stations, from which the SONA figures on hunger incidence were obtained, self-reported poverty has been essentially flat and unemployment has been rapidly increasing instead of declining so far in President Aquino's term. Still, there is a general sense that the country is making significant strides, if in nothing else at least in the rebuilding of governance institutions. Whether and how long before this translates to growth, however, and whether the government can put in place the other necessary ingredients, remain important questions.
This article is based on a July 27 Global Source report written by the columnist and Jeff Ducanes. Mr. Bernardo is a board director of the Institute for Development and Econometric Analysis.
