Business
World Introspective
By Romeo L. Bernardo
By Romeo L. Bernardo
Posted on March 27, 2017
I am
sharing below a post that my colleague, Christine Tang and I wrote last March
17 for subscribers of GlobalSource Partners (globalsourcepartners.com), a New York-based
network of independent analysts.
When
President Duterte was asked in a press briefing whether he supported the tax
reform bill, his answer was an unequivocal “Yes.” When pressed further about
whether he also supported the increases in excise taxes on oil and automobiles
embedded in the Department of Finance’s (DoF) package 1 of tax changes, he said
the strangest thing, “I don’t know.”
The President, who has made no secret of his lack of interest in economics, continued to explain that the tax reform law is “Dominguez’s,” referring to his Finance Secretary Carlos Dominguez III, adding that it is Mr. Dominguez who needs to raise the money to fund the administration’s projects. Aware that the bill is facing “rough sailing” in Congress, he said that he has called the Senate President and the Speaker of the House to support the measure (both happened to be seated beside him the press conference) and that “Dominguez explained everything.”
Yet, despite the DoF’s expectation that the bill would have hurdled the House of Representatives’ Ways and Means committee by now, before Congress goes on a 1-1/2-month break through May 1, the committee has only approved it “in principle,” subject to the review of a newly created technical working group, which may mean further compromises and chipping away of target revenue gains and being hostaged to pork barrel demands. Those working in the trenches know that even if they managed to get the reform proposal out of the House in fairly good form, they have a tougher challenge ahead in the Senate where members do not necessarily toe the administration line. In fact, the chair of the Senate committee on Ways and Means has been quoted as finding the DoF tax package “quite aggressive,” suggesting that the individual proposals will likely undergo recalibration in his shop. One cannot discount either the prospect of new measures being introduced, which would in turn mean that the next stage work of consolidating the House and the Senate versions of the bills would take longer and the final outcome, more uncertain.
It is no wonder then that supporters of the tax reform bill are frustrated by the President’s apparent lack of interest in the details of the reform package. Given his popularity, one could imagine a situation where a more hands-on approach would help immensely in reducing resistance to either raising oil and automobile taxes or removing certain exemptions from the VAT and thus, speed up congressional deliberations. Many would like to see the President style himself as the champion of the reform, articulating the necessary trade-offs in language that the public would understand and staking his political capital on the passage of the measure with the desired net revenues.
As it is, the President has apparently passed the onus to Mr. Dominguez.
We would like to think that given the Finance chief’s stature as one of the President’s most trusted advisers (with lawmakers seemingly holding him in high regard), as well as his personal assertiveness and political astuteness, he will succeed in time. But behind this attempt at optimism is the lingering worry, based on past Philippine experience with unpopular reform measures, that without the President’s personal leadership, the final bill passed would probably fall short of what the executive wanted. The situation is made worse by other Cabinet members, notably the social welfare secretary, voicing deep reservation, in front of Congress, about the proposed increases in oil taxes.
Already, analysts are anchoring expectations of potential revenue gains on similar legislative efforts under past administrations. The sin tax reform passed by the last administration yielded 0.6% of GDP in incremental revenues in its first year of implementation alone while the highly unpopular VAT reform, personally shepherded by then President Gloria Arroyo in 2005 with, we hear much persuading and threats, yielded over 1% of GDP. Considering this administration’s ambitious “golden age of infrastructure” program, an outcome from the current effort that does not measure up to historical standards would, we think, underwhelm markets and cast more doubts on the administration’s ability to deliver on its promised goal of inclusive growth whilst maintaining macroeconomic stability.
It is perhaps time for the President to go beyond generalities and own the tax reform proposal.
POSTSCRIPT
A Barron’s Asia March 22 article by noted economic journalist William Pesek entitled “Philippine Peso’s Troubles Just Beginning” said: “The peso is down 8% and investors are dumping stocks amid doubts about Duterte’s economic agenda.”
While Pesek’s basic message on the need for the President to start showing results in tax reform to pay for infrastructure and move up the Philippines in global competitiveness is aligned with what many local opinion leaders like Foundation for Economic Freedom Fellows Toti Chikiamco, Boo Chanco, Action for Economic Reforms Coordinator Men Sta. Ana, and I have been saying, the analysis failed to consider the US Fed tightening and economic recovery which are driving interest rates upwards and attracting flow of capital there, and sell-offs in equity and fixed income markets here and other emerging markets.
More fundamentally, our imports have been rising double digit, in large part from accelerated investments in power and telecom, a good thing. And if government succeeds in its “golden age of infrastructure” program, imports will outpace exports even more, and turn an over 10-year current account surplus to deficit.
Thankfully, the Bangko Sentral ng Pilipinas (BSP) is in good hands, and has sufficient reserves to manage volatilities and a Peso level that is conducive to price stability, competitiveness, and growth. Hopefully, the BSP will remain so after the retirement of highly regarded BSP Governor Tetangco and most of its equally outstanding Monetary Board Members by midyear.
Romeo L. Bernardo is a board director of the Institute for Development and Econometric Analysis. He was undersecretary of Finance during Corazon Aquino and Fidel Ramos administrations.
romeo.lopez.bernardo@gmail.com
The President, who has made no secret of his lack of interest in economics, continued to explain that the tax reform law is “Dominguez’s,” referring to his Finance Secretary Carlos Dominguez III, adding that it is Mr. Dominguez who needs to raise the money to fund the administration’s projects. Aware that the bill is facing “rough sailing” in Congress, he said that he has called the Senate President and the Speaker of the House to support the measure (both happened to be seated beside him the press conference) and that “Dominguez explained everything.”
Yet, despite the DoF’s expectation that the bill would have hurdled the House of Representatives’ Ways and Means committee by now, before Congress goes on a 1-1/2-month break through May 1, the committee has only approved it “in principle,” subject to the review of a newly created technical working group, which may mean further compromises and chipping away of target revenue gains and being hostaged to pork barrel demands. Those working in the trenches know that even if they managed to get the reform proposal out of the House in fairly good form, they have a tougher challenge ahead in the Senate where members do not necessarily toe the administration line. In fact, the chair of the Senate committee on Ways and Means has been quoted as finding the DoF tax package “quite aggressive,” suggesting that the individual proposals will likely undergo recalibration in his shop. One cannot discount either the prospect of new measures being introduced, which would in turn mean that the next stage work of consolidating the House and the Senate versions of the bills would take longer and the final outcome, more uncertain.
It is no wonder then that supporters of the tax reform bill are frustrated by the President’s apparent lack of interest in the details of the reform package. Given his popularity, one could imagine a situation where a more hands-on approach would help immensely in reducing resistance to either raising oil and automobile taxes or removing certain exemptions from the VAT and thus, speed up congressional deliberations. Many would like to see the President style himself as the champion of the reform, articulating the necessary trade-offs in language that the public would understand and staking his political capital on the passage of the measure with the desired net revenues.
As it is, the President has apparently passed the onus to Mr. Dominguez.
We would like to think that given the Finance chief’s stature as one of the President’s most trusted advisers (with lawmakers seemingly holding him in high regard), as well as his personal assertiveness and political astuteness, he will succeed in time. But behind this attempt at optimism is the lingering worry, based on past Philippine experience with unpopular reform measures, that without the President’s personal leadership, the final bill passed would probably fall short of what the executive wanted. The situation is made worse by other Cabinet members, notably the social welfare secretary, voicing deep reservation, in front of Congress, about the proposed increases in oil taxes.
Already, analysts are anchoring expectations of potential revenue gains on similar legislative efforts under past administrations. The sin tax reform passed by the last administration yielded 0.6% of GDP in incremental revenues in its first year of implementation alone while the highly unpopular VAT reform, personally shepherded by then President Gloria Arroyo in 2005 with, we hear much persuading and threats, yielded over 1% of GDP. Considering this administration’s ambitious “golden age of infrastructure” program, an outcome from the current effort that does not measure up to historical standards would, we think, underwhelm markets and cast more doubts on the administration’s ability to deliver on its promised goal of inclusive growth whilst maintaining macroeconomic stability.
It is perhaps time for the President to go beyond generalities and own the tax reform proposal.
POSTSCRIPT
A Barron’s Asia March 22 article by noted economic journalist William Pesek entitled “Philippine Peso’s Troubles Just Beginning” said: “The peso is down 8% and investors are dumping stocks amid doubts about Duterte’s economic agenda.”
While Pesek’s basic message on the need for the President to start showing results in tax reform to pay for infrastructure and move up the Philippines in global competitiveness is aligned with what many local opinion leaders like Foundation for Economic Freedom Fellows Toti Chikiamco, Boo Chanco, Action for Economic Reforms Coordinator Men Sta. Ana, and I have been saying, the analysis failed to consider the US Fed tightening and economic recovery which are driving interest rates upwards and attracting flow of capital there, and sell-offs in equity and fixed income markets here and other emerging markets.
More fundamentally, our imports have been rising double digit, in large part from accelerated investments in power and telecom, a good thing. And if government succeeds in its “golden age of infrastructure” program, imports will outpace exports even more, and turn an over 10-year current account surplus to deficit.
Thankfully, the Bangko Sentral ng Pilipinas (BSP) is in good hands, and has sufficient reserves to manage volatilities and a Peso level that is conducive to price stability, competitiveness, and growth. Hopefully, the BSP will remain so after the retirement of highly regarded BSP Governor Tetangco and most of its equally outstanding Monetary Board Members by midyear.
Romeo L. Bernardo is a board director of the Institute for Development and Econometric Analysis. He was undersecretary of Finance during Corazon Aquino and Fidel Ramos administrations.
romeo.lopez.bernardo@gmail.com
