MANILA, November 9, 2004 (STAR) By Marichu Villanueva and Jess Diaz - After declaring that the fiscal crisis is over, President Arroyo told the nation last night that the country has made a fiscal turnaround.

In a speech before local government executives, the President insisted that the country is definitely out of the critical stage of the fiscal crisis. She attributed this to the people’s unified response to her calls to address the crisis at the soonest possible time.

"From fiscal crisis three months ago — because nobody wanted to face it, so I had to point it out — to a fiscal problem because now we are all facing it, the fiscal turnaround is now in sight," the President told a gathering of the Union of Local Authorities of the Philippines (ULAP) at the Century Park Sheraton in Manila where she inducted its newly elected officials.

Calling the tax reforms she endorsed to Congress the "roads out of the (fiscal) crisis," Mrs. Arroyo expressed her gratitude to officials of local government units (LGUs) for presenting to the Senate and the House of Representatives a resolution calling for the immediate approval into law of the proposed increase in excise tax rates on alcohol and cigarette products as well as seven other revenue-raising measures.

The President, who is an economist, said she had no regrets in declaring last September that the nation was in a fiscal crisis even as she was "heavily criticized" for doing so.

"It is a crisis if we persist in financing our needs through borrowings," she said. "Not that the solutions are all being implemented, but a few days ago, I informed the public that we still have a problem but the solutions are in sight."

Mrs. Arroyo credited the "synergy" of actions taken by the people hand in hand with Congress, LGUs, the business sector and the executive branch that helped avert the crisis.

"Therefore, we have passed the most critical stage," Mrs. Arroyo said.

But in the wake of the President’s declaration of a virtual all-clear, the opposition in the Senate said it will now try to block any increase in electricity rates and taxes.

"With that declaration, there is no longer any need for new power rate and tax increases," Senate Minority Leader Aquilino Pimentel Jr. said yesterday.

The President, however, is counting on the "teamwork" of elected leaders of Congress and LGUs to put the nation’s fiscal house in order.Presidential Spokesman Ignacio Bunye said neither Mrs. Arroyo nor the executive branch has taken credit for averting the looming fiscal crisis. Rather, this would not have been possible without the show of unity and cooperation of Congress and LGU leaders, he said.

"Our strategic measures in putting our fiscal house in order are working and we attribute these positive developments to the swift action and full cooperation of our legislators and other sectors concerned," Bunye said.

"Banking on the strong teamwork and solidarity of the executive, Congress and our LGUs, the fruits of our common pro-poor agenda are already being felt and will continue to loom larger into the future," he said.

Bunye issued the statement after the President hosted the luncheon meeting with woman legislators of the 13th Congress yesterday at the Palace with some of her Cabinet members.

Presidential Communications Director Silvestre Afable Jr. said congresswomen who attended the meeting reaffirmed to the President their commitment to pass into law the "sin" tax bill and two other revenue-raising measures into law before the year ends.

But even with the once-threatening fiscal crisis averted, Mrs. Arroyo reiterated her call to LGU executives to help prod Congress into acting expeditiously on the pending tax measures as the lasting solution to the deficit problems of government.

For the opposition, however, the administration should now forget about further adjusting electricity rates and levying additional taxes since the President has already solved the nation’s fiscal problem that she herself disclosed more than two months ago.

"The President’s allies in Congress cannot insist on the proposed adjustments because they will make a liar of their party’s top leader," Pimentel said.

The President based her remarks on expectations that legislators would soon approve the proposed adjustment in specific taxes on so-called "sin" products like cigarettes and liquor.

Earlier, Pimentel described Mrs. Arroyo as a "magician" for making the threat of a fiscal crisis — brought about by three years of unprecedented budget deficits under her administration — disappear in three months.

After admitting that a fiscal crisis looms amid a widening budget deficit, Mrs. Arroyo ordered the government to work on increasing revenue collections and enforcing austerity measures to generate savings while Congress deliberates on the tax measures.

For another opposition lawmaker, there is "no hurry" to have Malacañang’s eight proposed tax measures passed since the fiscal crisis looms no more.

For the world to see that the Philippines "is trying to solve its problems seriously," Sen. Juan Ponce Enrile said: "We must craft good laws rather than just any law. It is the quality of the law that will show that we are really serious in reforming our system."

Even legislators on her side admitted the President’s declaration about the vanquished fiscal crisis has made it difficult for them to support Malacañang’s proposed power rate and tax increases.

Sen. Mar Roxas, Mrs. Arroyo’s former trade secretary, articulated his and his colleagues’ collective sentiments in a letter to the President last week.

The tax measures Malacañang submitted to Congress will be hard to defend now, Roxas pointed out.

The House of Representatives has passed its version of the Alcohol, Tobacco and Cigarette (ACT) tax, while the Senate ways and means committee is completing hearings on the House version and Senate Bill 1815 filed by Enrile.

Enrile’s bill seeks a higher cigarette tax than that recommended by congressmen.

Pimentel said if Mrs. Arroyo and her congressional allies still insist on the approval of the sin tax bill, he and his colleagues in the minority will instead push for Enrile’s proposed tax adjustments.

The House version of the measure, approved last Oct. 28, is estimated to bring in revenues of over P25 billion over a three-year period.

The House suggested that tax adjustments be 20 percent for 2005, three percent for 2006 and another three percent for 2007.

In the case of low-priced cigarettes, which are levied a specific tax of P1.12 per pack, the 20 percent increase is equivalent to 22 to 23 centavos. Enrile wants the tax increased by P4.88 to P6 per pack for this classification of cigarettes.

The House, however, is still open to a compromise with the Senate for the passage of the "sin" tax bill into law.

Speaker Jose de Venecia Jr. said yesterday that the bigger chamber is willing to pursue a flexible strategy and meet "halfway" with their counterparts in the Senate.

At the Kapihan sa Manila Hotel forum, De Venecia said the House members’ willingness to find a middle ground on the issue is for the purpose of "maximizing the revenue yield" from the proposed ACT tax measure.

De Venecia said the same before more than 300 Filipino and Korean businessmen at the Hotel Intercontinental in Makati City where he was guest speaker.

"National interest dictates that we pursue a flexible strategy that will maximize the revenue yield from this revenue (generating) measure," he said.

The Speaker said he and senior House leaders are awaiting the final ACT tax version of the Senate before calling for a meeting with leaders and members of the House and Senate committees on ways and means.

The bicameral conference committee will be convened after the bill is endorsed by the Senate to reconcile their version and finalize the tax bill.

Tarlac Rep. Jesli Lapus, chairman of the House ways and means committee, said more than P7 billion would be raised on the first year from the 20 percent across-the-board increase on tobacco and alcohol products.

According to De Venecia, the House is set to discuss in plenary this month two other Malacañang-certified tax bills namely, the rationalization of incentives and lateral attrition.

"If we want to become a major economy, a tiger economy in Southeast Asia like Malaysia and Thailand, we will have to approve all these measures," the Speaker said.

Relatedly, De Venecia assured the public that the House will approve next month the proposed 2005 national budget and transmit the measure to the Senate before Congress adjourns for the Christmas holidays.

"Definitely, we will have a new budget for 2005," he said.

The government has been operating under the re-enacted 2003 General Appropriations Act (GAA) for the past three years after conflicts in the passage of the budget bill.

De Venecia said the Senate could pass the proposed 2005 GAA in mid-January and the bicameral conference committee could convene in the third week of January.

The budget, he said, could be approved by the Senate and the House in early February and signed by the President before March.

Local execs for ACT

Local government officials from across the nation gathered to lobby for the legislation of higher "sin" taxes.

The 1.2-million strong ULAP, which is the confederation of local officials nationwide, met for a two-day general assembly at the Century Park Hotel and expressed their support to the government’s proposed tax measures.

In a meeting later with Senate President Franklin Drilon, ULAP leaders strongly appealed to the sense of patriotism of the senators to pass the proposed "sin" tax bill "by December."

In a manifesto, the local executives said the ACT bill and other "vital measures" proposed by Malacañang will "sustain our recovery from the fiscal crisis and pave the road to economic growth and stability."

ULAP president and Bohol Gov. Erico Aumentado said they also firmed up their unified stand on the issue of the Internal Revenue Allotment (IRA), which some Congress leaders have earlier threatened to cut in the wake of a widening budget deficit.

Aumentado, who is also president of the League of Provinces of the Philippines, said local officials will map out plans to protect the IRA of LGUs.

The passage of the "sin" taxes into law, he said, will not only avert a state of unmanageable public sector deficit but will also spare the IRA from cuts, which have already been declared by the Supreme Court as "unconstitutional and in violation of the Local Government Code."

"Any reduction or withholding of the IRA will greatly prejudice (the) delivery of basic social services of the LGUs particularly the fourth, fifth and sixth class provinces, cities and municipalities and barangays that rely heavily on the IRA," Aumentado said.

The local officials were also scheduled to hold a dialogue with Congress leaders on the IRA to prevent a repeat of the 1999 incident when a standoff ensued between local executives and Congress that drove the LGUs on the verge of a four-day work stoppage to dramatize their protest over an impending P30-billion IRA cut.

ULAP spokesman, Eastern Samar Gov. Ben Evardone told The STAR that the economic managers of Mrs. Arroyo led by Budget Secretary Emilia Boncodin and Finance Secretary Juanita Amatong have reaffirmed the President’s declaration that the feared fiscal crisis has been beaten.

"We’re still in the storm but we’re already out of the eye of the storm," Evardone quoted Boncodin as telling them at the ULAP conference.

DOH for higher ‘sin’ taxes

For its part, the Department of Health (DOH) expectedly threw supporting behind the proposal to impose higher cigarette taxes to discourage people from smoking.

Health Undersecretary Alex Padilla cited a World Health Organization study showing that 20,000 Filipinos every year succumb to smoking related illnesses.

The same study estimated the annual social and economic costs of smoking at P46 billion, he said.

This means that the government is spending more to attend to people with smoking problems than the amount it collects taxes on cigarettes, Padilla said.

To dissuade people from smoking, the tax on cigarettes should be at least two-thirds of its selling price, he said.

Padilla, a former Customs commissioner, also proposed that the present four classifications of cigarettes – premium, high-priced, medium and low-priced – be abolished since smokers would just shift to cheap cigarettes whenever the tax is hiked.

He said the four-tier system violates World Trade Organization agreements.

In the DOH study, it said that the cost of treatment and loss of productivity brought about by lung cancer was at P817 million; chronic lung obstruction, P4.9 billion; coronary artery diseases, P13.5 billion; cardiovascular diseases P23 billion, and P5 billion for other related ailments.

There are about 40 diseases directly related to smoking and tobacco use.

Earlier, Sen. Juan Flavier, a former health secretary, supported the proposal to impose higher adjustment in taxes on cigarettes.

"Worldwide, the experience is when cigarette taxes are substantially increased, people tend to slow down on their smoking. If we can achieve a reduction of 20 percent to 30 percent, at least we have done something for them," the senator said.

It was Flavier who launched the "Yosi Kadiri" anti-smoking campaign when he was health secretary during the Ramos administration.

Most of his colleagues in the majority, including Drilon, are for higher cigarette tax adjustments.

However, unlike Flavier, Drilon believes it does not necessarily follow that smokers will kick the habit if higher taxes are imposed.

Figures presented to the Senate ways and means committee chaired by Sen. Ralph Recto showed that sales of low-priced cigarettes were not affected when its tax was twice adjusted since 1997.

In fact, according to Enrile, sales of cheap cigarettes even shot up. – With reports from Pia Lee-Brago, Jose Rodel Clapano, Paolo Romero

Reported by: Sol Jose Vanzi

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