(STAR) By Iris C. Gonzales - Government subsidies to state-owned companies nearly doubled after the Arroyo administration decided to frontload spending for infrastructure and social services.

The government extended P27.33 billion in subsidies to government-owned and controlled corporations (GOCCs) and government financial institutions (GFIs) last year, Finance Undersecretary Jeremias Paul Jr. told reporters.

The figure is 98 percent higher than the P13.81 billion extended in 2006 despite earlier pronouncements by Finance Secretary Margarito Teves that the government would slash the financial assistance to GOCCs and GFIs.

Had the government decided to tighten subsidies last year, officials said the budget deficit could have been wiped out.

But President Arroyo said in an economic briefing on Friday that the government decided to continue extending subsidies to state-owned firms to pump prime the economy ahead of a possible economic recession in the US.

As such, the financial assistance extended to state-run companies and GFIs was P8.92 billion more than the programmed subsidy of P18.41 billion for the whole of last year.

Major recipients of government subsidies were Land Bank of the Philippines with P5.65 billion, National Housing Authority with P4.74 billion, National Electrification Administration with P2.73 billion and the National Food Authority with P2.21 billion.

The Philippine Health Insurance Corp. (Philhealth) (P2.06 billion), Technology and Livelihood Resource Center (P1.8 billion), Philippine National Railways (P1.11 billion), Bases Conversion Development Authority (P1 billion), National Power Corp. (P985 million) and the Light Rail Transit Authority (P981 million) also received subsidies.

The subsidy extended to LandBank was for the funding of the government’s Comprehensive Agrarian Reform Program (CARP) while the subsidy for NHA was intended to finance the relocation of informal settlers affected by the government’s infrastructure projects.

Subsidies extended to state-owned firms mean less funds for social services.

The government has been trying to wipe out the deficit. It managed to trim the budget deficit to a record low of P9.4 billion last year.

Suarez chides Teves on attrition law DEMAND AND SUPPLY By Boo Chanco Monday, February 18, 2008

For a former congressman’s son and a former congressman himself, Finance Secretary Gary Teves seems to have shaky support in Congress. Senator Enrile was hot on his case at the Commission on Appointments for supposedly giving up too much of his powers to one of his undersecretaries. Now, it is Rep. Danilo Suarez of Quezon, the author the Attrition Law, who expressed his disappointment with the Finance chief.

In a brief conversation we had last week, Congressman Suarez wondered what was keeping Teves from fully implementing the Attrition Law. The DOF under Teves has yet to convene the Revenue Review Board to evaluate the yearly performance of the Customs and Internal Revenue bureaus, Suarez lamented. He pointed out that fully implementing the law is the key to meeting the fiscal goals of the Arroyo administration.

Suarez is the sponsor of a number of measures designed to overhaul the government’s tax collection system. The Attrition Law is one of those and another important one is RA 9282 which elevated the Court of Tax Appeals into an appellate court. The main effect of this law is to shorten the time tax cases are heard because the decisions of the CTA are appealable only to the Supreme Court and only on questions of law.

This, Suarez said, is why the Bureau of Internal Revenue is now on a winning streak in court cases against tax cheats. As of the middle of last year, the BIR’s legal team scored an unprecedented 87- percent batting average over a period of one year and a half. This earned the government a total of P9.6 billion in tax collections.

Suarez explained that he thought about the need to reform the way tax cases are litigated out of his own experience as a private businessman. No one respects a BIR tax assessment, he said, because the tax evaders know they can tie up the case at the RTC level for years or even decades. Now that tax cases can only be heard by the CTA and almost unappealable, tax cheats will think twice, Suarez explained. It also helps that it is the BIR that now prosecutes cases against tax evaders and not the Department of Justice.

The congressman from Quezon now thinks we need one more reform measure to improve tax collection but unfortunately, it would require charter change. He pointed out that revenue collections dipped during election years. “In 2004 (an election year), for example, the growth rate for BIR collections was 9.9 percent. In 2005 after passing the excise tax amendment, the growth rate went up to 15.92 percent. In 2006 (with RVAT Law), growth rate rose to 20.28 percent. But in 2007 (an election year), the growth rate dropped to nine percent again.”

Thus, he wants elections spaced out at five-year intervals rather than just three years. Even for law making, three years is too short for a congressional term, Suarez asserts. “It takes half a year for a congressman to get to know how the system works, one year for productive law making and then it is time to campaign again for re-election.”

But the congressman is realistic enough to know that any cha cha talk these days sounds suspicious. Maybe, if and when we finally sit down to improve our current charter, this matter of the term of office of even the president ought to be reconsidered. Indeed, a six-year presidential term without reelection is too long for a bad president but too short for a good president. And as is our misfortune now, 10 years is like an eternity.


Still another senator urged Finance Secretary Teves to prove himself effective by running after smugglers. Senator Richard Gordon, a member of the Commission on Appointments, revealed that the National Government can generate up to P26 billion additional income if the Finance Department can rectify the raging smuggling in the country.

“Doon lang sa cigarette smuggling P9 bilyon na ang makukuha ng gobyerno kung hahabulin lang natin ang mga ‘yan. P4 bilyon sa alak at sa car smuggling ang estimate na makukuha natin is about P13 bilyon. Wala pa dyan yung sa smuggling ng langis,” he said.

Gordon suggested that the confirmation of Teves depends on how he shows his skills in cleaning up the Finance Department and going after the smugglers. Consideration of his appointment was yet again suspended by the CA when he failed to give credible explanations on his continued failure to curb smuggling among other concerns. Gordon presented volumes of documents during the CA hearing to show that smuggling is rampant.

“The country should not lose its sense of urgency in stopping rampant smuggling that is now crippling our industries. The record is there, just go run after them. If you catch them then people will say it’s good to pay taxes because they are catching the crooks. When you have the evidence right in front of you, when you can trace them, wouldn’t it be preventive if we go after these people because it will deter all other individuals from attempting to do the same?”

Gordon chided officials of the Bureau of Customs for not doing enough to stop smuggling in the country, as he lamented the Bureau’s lack of an order of battle against top smugglers in the country, including those who sneak in second-hand vehicles through Clark and Subic. “The real problem is not smuggling but the invulnerable power of very high officials to protect smuggling rings on a regular basis,” Senator Gordon said.

Gordon, the founding chair of the Subic Bay Metropolitan Authority (SBMA) added that smuggling had gotten worse at Subic after he left. In the last two years, a total of 100,000 smuggled vehicles were shipped into Subic Bay Freeport.

Underground wealth

Got this e-mail from Rogelio Paglomutan.

This has reference to your article today (Feb. 13, 2008) “Where did the created wealth go” where you pointed out the inconsistencies between GNP growth statistics vs. surveys of manufacturing [volume of production index (VOPI) and survey of selected industries (MISS)] and the non-trickling down of economic growth (the questionable “ramdam ko ang asenso” ad).

Many of our local economists seems to have not reckoned the fact that about 44 percent of GDP is accounted (reflected in GNP/GDP accounting by NSCB) by the informal sector of the economy - underground economy (i.e, the tiangges/talipapa, sidewalk vendors, home handicrafts, tricycle drivers/colorum PUVs, small tillers, smugglers, etc).

This informal sector generally does not pay taxes (thus contributed to lower than expected tax collection relative to economic growth; including the lack of government credibility that discourages correct tax payments or encourages tax evasion in both formal and informal sectors); many vendors now are hot in selling imported goods from China (an opportunity losses for local production, thus a decline in VOPI) but it resulted in increased consumption expenditures (an added amount to GNP/GDP accounting).

What happened in our economy in recent years is that the benefit of higher economic growth went more to the richer sector of the population (where they are situated / located / employed in profitable/growing businesses), while the poor and middle classes were left in the growth process (an equity issue in economics given the public/tax policies and structure of the Philippine economy).

Hope I added few insights to your article today.

Chief News Editor: Sol Jose Vanzi

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