BY ANA MARIE PAMINTUAN: CATCHING UP... THE ECONOMY
MANILA, FEBRUARY 19, 2010 (STAR) SKETCHES By Ana Marie Pamintuan - The next administration, according to Finance Secretary Margarito Teves, cannot avoid imposing new taxes.Though Teves did not refer directly to Sen. Benigno “Noynoy” Aquino III, the finance chief’s comment came on the heels of the promise given by the Liberal Party’s standard-bearer, that he would not impose new taxes if he wins.
Noynoy, who is campaigning on a platform of anti-corruption, believes a significant reduction in graft and overall efficient tax collection will make new or higher taxes unnecessary.
His rivals, on the other hand, are eyeing taxes on so-called sin products, or don’t want to be pinned down on a campaign commitment not to impose new taxes.
Noynoy’s closest rival, Sen. Manny Villar, is cool even to bigger tax incentives to attract more foreign direct investment.
Where to get the money to finance development projects and build the infrastructure needed to stimulate investment and economic growth will be among the top problems confronting the next president.
The tax base has just shrunk further with the exemption of millions of senior citizens from the expanded value-added tax.
Since my generation is headed for dual citizenship (Filipino and senior), I look forward to one day enjoying the tax break.
When the government is corrupt, people also pay taxes with resentment, and are only too happy when they enjoy any form of exemption. Campaign promises such as Noynoy’s resonate.
But exemptions wreak havoc on the VAT system, which might have to be reviewed by the next administration. Many Filipinos don’t bother demanding receipts, and business establishments are happy to oblige. Professionals tell clients how much they can save if their transactions are not covered by VAT, and the clients also happily oblige. For doctor’s fees, for example, this could mean thousands of pesos saved per consultation.
A president who is ineligible for re-election and who is on genuine legacy mode could have put her foot down and vetoed the expanded VAT exemption for seniors. But since President Arroyo is running for a congressional seat and reportedly gunning for the post of House speaker, and because her chosen successor is languishing in single-digit survey ratings, she couldn’t afford to say no to the new law.
She could have borrowed a page from Makati instead, providing greater benefits and social safety nets for seniors, but based on their income rather than a universal application of a tax break. That way, enormously wealthy seniors will not enjoy the same tax exemptions as the dirt poor.
But that would have constituted an open acknowledgment of the work of one of her arch critics, Makati Mayor Jejomar Binay, head of the United Opposition and running mate of former President Joseph Estrada, a.k.a. Erap para sa mahirap (Erap for the poor).
And so the next president will have to find a way to make up for the billions in revenue that will be lost as a result of the expanded VAT exemption.
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Improving revenue collection and looking for additional sources of funds are needed if the next president is to lead the country in catching up with its neighbors.
Newsweek magazine, in a recent issue on the state of the global economy after the financial meltdown, described the Philippines as “Asia’s laggard.”
The World Bank’s director for the Philippines, Bert Hofman, is less harsh, and he is bullish on the country’s prospects for improvement.
In a keynote speech at the 13th annual gathering of the Foreign Correspondents Association of the Philippines, Hofman acknowledged that the Philippines’ economic growth in the past decade, at an annual average of nearly 5 percent, has been higher than in the two previous decades.
But the growth, Hofman said, “has not been enough to make a serious dent in poverty, which today is probably about as high as it was at the start of the last decade.”
The growth rate, he said, means an average growth of only 3 percent in per capita income, which is currently more than 20 times lower than the $36,000 in a typical high-income country.
At current growth rates, the World Bank estimates that the Philippines will achieve the level of prosperity of China within 25 years, and of Malaysia, a middle-income country, within 50 years. At current growth rates, it will take the Philippines 70 years, Hofman estimates, to reach the threshold $12,000 per capita income level that will make it qualify as a high-income country by World Bank standards.
Would it be possible for the Philippines, Hofman asked, to grow by an annual average of 7 to 8 percent at a sustained clip, like its better performing neighbors? Thirteen economies have managed to achieve that kind of growth for at least 25 years since 1950, and most of them are our neighbors: China, Hong Kong, Indonesia, Japan, South Korea, Taiwan and Thailand, with India set to join the club.
A commission on growth and development, sponsored by the World Bank, studied these economies and concluded that with “the right mix of ingredients,” rapid, sustained growth for developing countries “is not a miracle” but attainable.
“What the book observes,” Hofman said, “is that the rapid growers did five things right: they fully exploited the world economy; they maintained macroeconomic stability; they mustered high rates of saving and investment; they let markets allocate resources; and they had committed, credible, and capable governments.”
Hofman enumerated the strengths of the Philippine economy: a “reputation” for macroeconomic stability on the back of workers’ remittances, a savings rate that exceeds investment, and human resources that are in high demand worldwide.
The “bottleneck” as he called it was in the “creation of opportunities for deploying these financial and human resources.” Hofman noted the need for bigger investment in infrastructure and education. Anti-corruption efforts and policy consistency, he said, also fell short of standards expected of lower middle-income countries.
The right policies complementing institution-building, he said, could pave the way for “inclusive growth.” He called for minimum safety nets on the road to development, equal opportunities, equal protection under the law, and a level playing field in markets.
Hofman, who has managed to stay out of trouble since the World Bank debarred several private contractors from WB-funded projects a year ago, told me yesterday that his speech was “not at all negative.”
“It talks about the opportunity for the Philippines to join rapidly growing countries,” he said.
Though nothing can be attained without the involvement of all Filipinos, much will depend on the kind of leadership that we pick in May.
Chief News Editor: Sol Jose Vanzi
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