OPINION: A MOST STUPID MOVE
MANILA, JANUARY 8, 2007 (MALAYA) (“A free market economy succeeds on the fundamentals of free competition and biting the bullet like we should in higher prices of fuel products.”)
Malacañang is planning to reduce, if not altogether remove, the expanded value added tax on fuel products.
This plan is defeatist and is purely intended to shore up the sagging image of President Arroyo by making it appear that she is concerned with the welfare of the little people who suffer immensely from rising prices of refined fuel products.
She completely ignores the damaging effects of the plan. The estimate is that a 1 percentage point cut – from 12 to 11 percent – of the EVAT will cost the government billions of pesos in foregone revenues.
As it is, oil products are the biggest source of tax revenues. A cut could pain the economy so deeply that budgetary deficits would rear their ugly heads in bigger sizes as early as next year if the reduction is made effective soon.
President Arroyo and the politicians supporting her conveniently forget that the budget for 2007 was in surplus not because tax collections increased in amounts equal to the national appropriations.
Government expects a balanced budget this year and maybe until President Arroyo steps down in 2010.
A deep cut in the EVAT for oil products will make that pie in the sky. The reason for the balanced budget last year and maybe in the next two years is the one-time income from the sale of government assets.
In fact, the government is so desperate to pursue privatization that it even sold financial assets like shares of PLDT and San Miguel. By that, it denied itself expected handsome revenues.
We do not know how much in one-time income the government may get from privatization. But in the next few years, state assets will all be in the hands of the private sector.
By which time, the government will rely completely on tax collections of the Bureau of Internal Revenue and the Bureau of Customs. Considering the propensity or greed of government to bloat the national appropriations every year in the face of the failure of the two revenue agencies to meet collection targets, a gargantuan budgetary deficit is lurking.
In fact, the deficit could recur this year if the government cuts the EVAT on oil products.
The proposed cut will not increase productivity. Prices of fuel products cannot be reduced that much, to begin with.
Surely, the consumers will be pleased and may even look up to President Arroyo as their savior. But in the end, we will all suffer. A pernicious budget deficit, caused by the reduction in revenues from oil products, will have a horrible impact on everything and everybody.
To begin with basic services such as health and education will definitely deteriorate for lack of money.
Then there is the more important question of shortage of funds for hard and soft infrastructure, more commonly known as capital investments.
When deficits recur in bigger amounts, debt service correspondingly mounts. That helps reduce funds for capital expenditure and basic services.
The government similarly ignores the security aspect of selling some of its assets, principally the generating plants.
A government concerned with national security would not even think of selling power plants whether they are making money or not.
But they are sold so that government can lay its hands on money the BIR and customs are unable to collect.
The proceeds from the sale power plants are presumably used to pay the gargantuan debts of the National Power Corp. which have been assumed by the national government.
The greatest mark of statesmanship is biting the bullet when avoiding it will certainly result in unbearable suffering of all the people.
But the Arroyo government would rather please the consumers and leave them in an abyss not too long after.
To paraphrase Abraham Lincoln, "with charity for all, with firmness on the right as God gave us to see the right. Let us strive to finish the work we are in, to bind up the nation’s wounds …"
Charity is a strange word for this government. Firmness and its meaning are even more unknown.
Bind up the nation’s wounds? No! The government is rubbing salt on them.
As "God gave us to see the right"? I do not know about that. What I can remember is that President Arroyo, said "God put me here" after she cheated victory from Fernando Poe Jr.
In a working democracy, it is always the consumer who bears the brunt of higher prices. The usual solution is providing more jobs that in turn raises the inflation rate.
A free market economy succeeds on the fundamentals of free competition and biting the bullet like we should in higher prices of fuel products.
We cannot destroy the economy of this country by deliberately reducing incomes in the name of the people. It is the people who will suffer more.
Peso crosses 40 mark against US dollar
The peso yesterday briefly crossed the 40 mark to the US dollar, level last seen in March, 2000.
The further strengthening of the peso was traced to the expected rate cut by the US Federal Reserve.
Traders said the central bank may have stepped in to curb the local currency’s rise, resulting in the peso’s staying at the 41 level although with the dollar further weakening, the peso is set to test eight-year highs "eventually."
At the Philippine Dealing System, the peso opened at 41.05, and then hit an intra-day high of 40.99. The local unit then finished the session at 41 flat, up from 41.01 Friday, a fresh seven-and-ten-month high.
Total turnover amounted to $428.5 million from $629.2 million.
Traders said the peso is seen breaching the 40 levels, testing probably the 40.70-40.90 levels in the proceeding sessions.
"Remittances remain strong. The prospect of the Fed lowering its key rate anew is seen further slowing the dollar," one trader said.
Traders said the central bank was spotted in the market, tempering the peso’s gains. With limited capacity to intervene, however, traders said the peso would "eventually" rise to the 40 levels.
Scarce demand, traders said, was adding to the peso’s strength.
Jonas Ravelas, market strategist of Banco de Oro Universal Bank, said; "only a break of 41.30 resistance levels suggests near-term reversal towards 41.50-41.75."
Chief News Editor: Sol Jose Vanzi
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