Friendly advice to the Palace spokespersons

“Gov’t: No new tax in 2014.” (Philippine Star, 2 January 2014.)

“Palace: We’re helpless on power rates.” (Philippine Daily Inquirer, 4 January 2014.)

These are pronouncements that the Palace spokespersons should have avoided.

In the first case, the Philippine Star reported: “The government assured the public Thursday that it would not push for new tax measures that would burden the citizens in the year of 2014.”

Presidential Communications Operations Office Secretary Herminio Coloma Jr. said: “That’s the promise of our president (not to impose additional tax) since the start of his administration. If we were to look on the record of the administration, there was only change in relation to sin tax reforms.”

Coloma’s statement in fact contradicts the actions that the Executive has taken. His statement can thus undermine the current initiatives on tax reforms.

Various government agencies have endorsed to Congress the passage of the bill that will reform and increase the tax on mining. Its passage is most likely, considering that government, the chamber of mines, and civil society are agreeable to increased mineral taxation. The central debate revolves around the optimal rate. And here, the differences among the reasonable stakeholders can be narrowed.

Furthermore, the Department of Finance and the Department of Trade and Industry support the rationalization of fiscal incentives, though they may have different versions of the bill. The rationalization of fiscal incentives, strictly speaking, is not a tax, but it is still tax policy.

The enactment of a mining tax and the rationalization of fiscal incentives, to cite a World Bank study, can bring extra revenues, equivalent to approximately 1.4 percent of GDP.

More to the point, the PNoy administration is serious in achieving its lofty target of a tax effort of 16-17 percent of GDP by the end of its term. This cannot be obtained exclusively through intensified tax collection. Not even the substantial incremental revenues gained from the sin tax reforms will be sufficient to reach the target of at least 16 percent.

The statement of “no new tax” also reduces government’s flexibility to introduce timely tax measures that will bring about high social and economic benefits.

Take the specific tax on gasoline. The current tax on gasoline is very cheap, its real value heavily eroded by inflation through the years. At the very least, this tax must be adjusted to inflation.

An increase in the petroleum tax serves other important objectives: curbing pollution and alleviating Metro Manila’s horrendous traffic, thus enhancing public health and promoting workers’ productivity.

This early, we can safely say that one of the biggest legacies that the PNoy administration will leave is in the area of fiscal reforms. Let this not be impaired by a statement of “no new tax.”

Let’s address the second pronouncement, this one on power rates and this this time emanating from Deputy Presidential Spokeswoman Abigail Valte. She said: “So while you believe that the Executive has so much perceived power we are limited by what the law says.”

The Electric Power Industry Reform Act of 2001 (EPIRA) has indeed prevented government from intervening to address the market failure in power generation. Despite deregulation and privatization, the private sector is generally averse to making huge investments in power generation, without the certainty of supply contracts.

The EPIRA has become a binding constraint to power supply, thus threatening the sustainability of economic growth. In this regard, it is worth quoting an already oft-cited article of Richard Javad Heydarian of The Huffington Post (23 December 2013):

“But there is a deeper lesson to draw from the Philippines’ power-generation predicament. Contrary to the conventional analysis…what the Philippines needs the most is not more privatization and economic liberalization per se—which have actually exacerbated rather than ameliorated the country’s structural economic weaknesses since the 1990s—but instead a stronger state that (a) can bust oligarchic collusion, and (b) protect the interest of the consumers and productive sectors of the economy.”

EPIRA, in this context, must be amended. Deputy Presidential Spokeswoman Valte acknowledges the problem.

But here’s the rub, which led the Inquirer to spin the news and say that the Palace is “helpless.” In the words of the Inquirer, Valte said “the Executive was not the right branch of government to make the initiative.”

On the contrary, the Executive can take the initiative in pushing for legislative reforms. The bills on the sin taxes and reproductive health were passed mainly because the Executive championed them.

One cannot expect a narrow-minded, non-reformist Congress, populated with vested interests, to take the lead in passing a hard, controversial reform. Valte’s statement, unfortunately, signals a hands-off policy from the Executive. This disinterested approach is similar to the Executive’s treatment of the freedom of information (FOI) bill, which only drew resounding criticisms even from its allies.

In this light, it would have been better at the same time safe for Ms.Valte to say: “The Palace does not legislate, but it will be happy to see Congress amend EPIRA.”

Some friendly advice to the Palace spokespersons: We like you. We will not shoot the messengers. Despite the constraints you face in issuing statements, do not be defensive, but be circumspect. Always be aware of the proverb about the left hand not knowing what the right hand is doing. Above all, be accurate and be forthright.

Sta. Ana coordinates Action for Economic Reforms (www.aer.ph).

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