PDI Get Real 01.24.09 Adding insult to injury

Get RealAdding insult to injury
By Solita Collas-MonsodPhilippine Daily InquirerFirst Posted 01:11:00 01/24/2009Filed Under: State Budget & Taxes, Congress, Economy and Business and Finance, Economic Indicators

If anyone had any doubts about the perception of corruption in the legislature, surely they have now been laid to rest with the news reports that Congress had increased its 2009 pork barrel by more than P2 billion over that of last year’s. [Read story]

That has to be adding insult to the injury our legislators have perpetrated on the Filipino people when, in the face of the obvious need for a fiscal stimulus package, they not only allocated a piddling P56.1 billion for the purpose, but also delayed its approval for over six months since the need was recognized. One uses the term piddling advisedly: That amount is about 0.8 percent of one percent of our gross domestic product (GDP), compared with China’s stimulus package of a reported 18 percent of its GDP or Singapore’s of eight percent of its GDP. Even the United States, which has been acting as if it cannot tell its face from its rear end as far as its economic problems are concerned, has approved a stimulus package that is about one percent of GDP, on top of the funds it has set aside to “bail out” the financial sector (roughly five percent of its GDP).

One cannot resist pointing out that these shortcomings on the part of the legislature have been met with equanimity by all concerned, and that had it been President Gloria Macapagal-Arroyo who was involved, the reaction would have been outrage and impeachment calls.

And in for a penny, in for a pound: it was reported that Singapore, which grew 7.7 percent in 2007 (compared to our 7.3 percent), reported a sharp slowdown in 2008 GDP growth to only 1.2 percent. While official estimates of the National Statistical Coordination Board are still to come out next week, the National Economic and Development Authority (NEDA) has estimated that our growth last year was anywhere from 3.5-4.2 percent. Not a bad performance on our part, considering. If we refuse to attribute it to Gloria’s management, much less should we attribute it to the legislature’s efforts. But let us at least congratulate ourselves for once, for having weathered the storm so far, relatively better than Singapore has done. The bad news is that given the size of our stimulus package and the delay in its passage, it is more than likely that we won’t do so well this year.

But our legislators can still redeem themselves partially, if they so wish. For example, they want to make sure that the budget deficit does not increase, so that if they want to increase expenditures, revenue collections must increase at least at the same pace. To that end, they are, according to news reports, looking at the “sin” taxes — excise taxes on tobacco and alcoholic drinks.

On the other hand, while they are studying the matter, there is one very simple action they can take, which would take at most five minutes of their time: just remove the poison pill provision that was inserted in the law in 1997 by the bicameral conference committee (it wasn’t in the original bill). In effect, that provision keeps the classification of the tobacco and alcohol products nailed to what they were as of Oct. 1, 1996, “until revised by Congress.” Henceforth, the classification should be based on current net retail prices, as explicitly defined in the tax code, and not prices obtaining 12 years ago!
That poison pill provision, innocuous as it looks and sounds, has cost the government tons of money in lost revenues, already estimated at something like P20 billion a year by then-secretary of finance Lito Camacho, way back in 2002, just on cigarettes alone. That amount would have to be much larger six years later. The Filipino people will probably (grudgingly) concede Congress its additional P2-billion pork barrel, if it paves the way for getting P20 billion more a year in sin taxes.

It must be pointed out, that the P20 billion in lost revenues is not just because of the freezing of the classifications to 1996 prices. The loss is also due to the rampant underdeclaration of production — and whistleblower Elpidio Que has documents purporting to show that for alcohol products, only 10 percent of the actual value of transactions is being reported for tax purposes. (The figure is even lower for cigarettes.)

That is where the executive branch should come in. Because if Congress has shown an obvious bias in favor of certain cigarette and tobacco interests to the disadvantage of the Filipino people (but to the private benefit of the legislators), the executive has shown equal, if not greater laxness. To wit: the Bureau of Internal Revenue, more than six months after Que blew his whistle on Lucio Tan’s Asia Brewery Inc. and Fortune Tobacco Corp., has still to report what the results of its investigations (if any) have been on the matter.

But what has been happening in the tobacco and alcohol sectors is also happening in petroleum. A few statistics tell the story: In the 10-year period from 1997 to 2006, the economy grew at an average of 4.3 percent a year, the number of petroleum-powered motor vehicles increased by 70 percent, and our population grew by 15 million. Yet, over that same period, the official statistics show that our consumption of petroleum products decreased from 138 million barrels of oil equivalent to 101 million barrels!

Smuggling is what explains the discrepancy — and here the loss in revenues because of oil smuggling was estimated at P29 billion for 2006 alone. The good news is that smuggling should be relatively easy to stop: the movement of oil is not easy to hide.

The way is clear: Congress focusing on tobacco and alcohol (or even just tobacco alone), the executive focusing on petroleum products. Surely that is not too much to ask? It may spell the difference between some growth and the specter of recession.Copyright 2008 Philippine Daily

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