August 5, 2018 | 8:58 pm
BusinessWorld Introspective
There are grounds for optimism.
We were pleasantly surprised by the President’s statesman-like demeanour as he articulated a clear legislative agenda for this Congress in its remaining months before election season. Most of them are foundational legislation for peace and prosperity.
His first ask was for the Bangsamoro Organic Law — which Congress passed and he signed forthwith. We in the Foundation for Economic Freedom vigorously welcomed it, calling it “a giant step toward peace and development in Mindanao.” We encouraged the future Bangsamoro Autonomous Government “to anchor their development efforts on free market principles but steered by a responsible elected government assisted by competent, efficient and honest bureaucracy,” noting there is “no reason why the BAR cannot be like Hong Kong and Shenzen in China,” exemplars “of free market principles combined with good governance.”
The President likewise asked Congress to urgently pass two pieces of priority legislation. One, the proposal to liberalize rice importation and shift away from quotas to tariffs, as a way to lower rice prices. The recent spike in rice prices and overall inflation owed much to the continued mismanagement by NFA. Its decades long monopoly has consistently led to cost of rice for our people being as much as twice as high as our neighbors’, as well as over P200 billion of unpayable debt guaranteed by the national government.
Two, passage of TRAIN, not just the second package on lowering corporate income taxes and rationalizing fiscal incentives, but also pertaining to tax amnesty, capital income taxation, and “sin taxes.” Package 2 is essential to make the Philippines competitive with its neighbors tax-wise and encourage investments and jobs. It will also favor the 90,000 small and medium size businesses which, unlike a small number of large firms, do not enjoy “forever fiscal perks.”
The election of the new Speaker, Gloria Macapagal-Arroyo, a Phd from the highly respected UP School of Economics, has been widely welcomed. People who have paid close attention to the economy when she was President know well how key economic initiatives then contributed critically to the improved performance we have been seeing — over 6% GDP growth for 12 straight quarters, manageable inflation, low interest rates, higher levels of public and private investments.
I underline in particular two milestone pieces of legislation, the Electric Power Industry Reform law and the Reformed VAT law.
The first reengineered our electricity sector. Competition and private sector efficiencies have made shortages a thing of the past, and at a more affordable cost of electricity. Just as crucially, it offloaded from government and taxpayers the burden of financing power sector investments, and helped improve our fiscal position.
The RVAT law on the other hand is well recognized by credit rating agencies, multilateral financial institutions, and the broader financial community as a game changer in improving our macroeconomic position and ushering upgrades in our credit rating. Then-President Arroyo was very hands on in ensuring its passage in good form, without being mangled as typically happens with tax legislation.
A case study Christine Tang and I did for the ADB (Managing Reforms for Development, Chapter 2 “Political Economy of the Reformed Value-Added Tax in the Philippines,” downloadable for free at http://www20.iadb.org/intal/catalogo/PE/2013/11631.pdf), told the story of how Ms. Arroyo drove this reform effort — getting the reform on the legislative agenda, forging consensus among not just legislators but also key stakeholders (including captains of industry whom she assembled at her home and Congress leaders whom she bent to her will.)
This kind dogged persistence is needed from President Duterte, and from her as Speaker of the House of Representatives where tax legislation needs to originate, to get TRAIN 2 and the succeeding packages going. It seems stuck despite the vigorous efforts of Secretary Dominguez backed by the strong analytical studies of the technocrats in the Department of Finance, and weighing in of civil society, including eminent economists and former finance secretaries. ( ee for example columns of Prof. Raul Fabella, “TRAIN 2: The failures it addresses” and my “Eight former Finance Secretaries support TRAIN 2,” both in this column space.)
The Foundation for Economic Freedom likewise welcomes the President’s push for the passage of the Land Use Act, but with some caveats. Permit me to quote FEF Fellow Art Corpuz, a known expert in City and Regional Planning (PhD and former Lecturer, Cornell University; former Professor of Urban and Regional Planning in UP).
“The importance given by the President to the NaLUA is well-founded. This is an opportunity to pass legislation on land use that serves to increase productivity, generate employment, reduce poverty, and protect the environment. Unfortunately, current drafts of the NaLUA are focused on imposing land use restrictions that penalize efficiency, discourage investments, encourage violations and corruption, and hamper the protection of lands that need to be protected. For example,
• In rural areas, the myth of food self-sufficiency is perpetuated instead of tapping market demand to raise productivity and farmers’ incomes.
• In urban areas, the need for growth is ignored, which contributes to uncontrolled expansion and land conversion, while disregarding and thus hampering the established role of cities to lead innovation and productivity gains, attract investments and generate employment, and therefore serve as prime venues for poverty reduction.
Unlike the national land use policies of other countries that have moved forward, the current NaLUA drafts have no references to competitiveness, innovation, and technology; the critical role of connectivity, strategic geopolitical considerations, and drivers of future growth (consistent with the PDP/Ambisyon 2040) are ignored.
The drafts are outdated, mired in a shotgun protectionist mode that assumes unrealistic levels of competency in the bureaucracy.
Instead, the NaLUA should remove constraints to investments in agriculture, promote urban and economic growth, especially at densities that discourage sprawl and allow more efficient infrastructure, and provide for the immediate identification and protection of environmentally constrained lands at the ground level.”
I pray that Congress will devote its remaining months to legislation that improves productivity of the economy, generates investments and jobs, and uplifts the lives of our people, instead of allowing itself to be distracted by Federalism as the solution. As the UP School of Economics Lecture topic said — “If Federalism is the answer, what is the question?”
Romeo L. Bernardo is a Fellow of the Foundation for Economic Freedom and a Governor of the Management Association of the Philippines. He was Finance Undersecretary during the Corazon Aquino and Fidel Ramos administrations.
romeo.lopez.bernardo@gmail.com
