The Long View
Sobriety versus Wowowee
By Manuel L. Quezon III
Philippine Daily Inquirer
First Posted 23:05:00 02/14/2010
THE two leading candidates, Aquino and Villar, have taken turns facing the Makati Business Club to put forward their views concerning business and the economy. Their views present an interesting study in contrasts.
Both seem to agree that, as Aquino put it, the country’s tax-to-GDP ratio must be raised to at least 15 percent, close to the 1998 levels of 17 percent, from the current 13.4 percent level, if a significant dent in cutting the budget deficit is to be made. Back in mid-January, Villar, speaking at the Romulo Foundation forum, referred to similar figures and said, “We lost about 3 to 4 percent; that represents about P250 to P280 billion [in lost taxes].”
At the time, Villar also said the answer was to focus on corruption and implement more efficient collection. He also proposed better use of the pork barrel, and what he called strategic borrowing to bring about economic stability (“I really feel we have to borrow for our Department of Health obligation of the state,” he said in the forum).
But that was then and this is now. On Jan. 21 Aquino spoke before the MBC, followed by Villar on Feb. 11. Where both seemed to have similar messages in mid-January, by early February Villar had more starkly differentiated his approach from that of his main opponent.
While both agree that the next president will inherit a substantial, even crippling, deficit from the present dispensation, Aquino pegged it at “P272.5 billion, or 4.1 percent of GDP” as of November last year; Villar, on the other hand estimated that the “deficit this year is projected to balloon to over P300 billion or about 3.5 percent of GDP.” So Aquino for one pegs the deficit higher than Villar percentage-wise.
Yet Aquino pledged: “We will refrain from imposing new taxes or increasing tax rates,” while Villar cautioned that “I cannot promise no new taxes; It would be irresponsible of me to limit my options knowing the magnitude of the problem.” Instead, he said he would push to raise revenues and spend wisely, but “as we have seen, raising revenues is not a simple matter.”
In the first place, Villar pointed out, the country already has one of the highest tax rates in the region. Let me venture that in the second place, Villar knows he’s saddled with legislation that has helped reduce revenue collections to provide perks for specific industries. For example, back in July 2009, Villar had taken pride in being one of the principal co-authors of RA 9640 which lowered amusement taxes from 30 percent to 10 percent of admission fee gross receipts: he said it would provide a boost to the film industry.
So Villar set out to dampen expectations and, along the way, differentiate himself from his main rival by contrasting the can-do optimism of his nemesis with a heavy dose of his own, pragmatic, reality: “there is no country in the world that has been able to eliminate [graft and corruption] completely,” he told the MBC, although “I will make clear that there will be zero tolerance of graft and corruption,” and, furthermore, “I will work hard to reduce it significantly.”
The former was a meaningless platitude while the latter immediately served to dampen any expectations he might’ve raised.
In contrast, Aquino’s earlier pronouncements were more sober: “In addressing the looming fiscal crisis, good governance and the drive against corruption are critical components in our strategy,” and, “I strongly believe that we can collect more taxes at the BIR and higher duties at Customs if we become more serious in curbing and punishing tax evasion and smuggling.”
Why do I say Villar was rhetorical where Aquino was sober?
Villar, in vowing zero tolerance of corruption, refrained from giving specifics. On the other hand, Aquino pointed to actual programs that already existed but hadn’t been implemented: “The ideas to improve tax administration and to control smuggling have been there for some time and some programs have been initiated in the past. One of these successful programs was the RATE or Run After Tax Evaders. In fact, some of the people at the Department of Finance and the BIR who have tried to implement reforms before are with us now, and together with reform-minded career executives, we intend to put their commitment and talents to good use under my administration.”
In other words, if fixing the revenue problem requires fighting corruption, then the logical first place to look is where efforts have succeeded in the past – or failed because otherwise good anti-corruption plans and programs ended up moldering on the shelf because the present dispensation in turn dispensed with fighting corruption. As Aquino told the MBC, “In this effort, we will not be starting from zero. Be assured that those smugglers and evaders are not faceless and unknown entities.”
Villar, on the other hand, declined to be specific, granting himself a crowd-pleasing rhetorical latitude without giving anyone any means to pin him down later on down the line.
At the heart of that study in contrast is their view of what a president’s approach to fighting corruption should be. Again, Aquino was specific: “My budget team estimates that for 2009 alone, around P280 billion of our national budget was lost to corruption. If we take the years 2002 to 2009, the total estimates exceed one trillion. Estimates vary, but everyone agrees that the numbers are huge, he told the MBC. Villar sidestepped the issue altogether: again, he preferred to float around on the level of the purely rhetorical.
He did put forward political Wowowee: “If elected; Large contracts can be bidded out and televised for all to see. This would send a message that we mean business.” In this, he at least displays a kind of consistency: to substitute media fanfare for authentic institutional scrutiny.
(You can read Sen. Benigno S. Aquino III’s January 21 and that of Sen. Manuel Villar Jr’s February 11 speeches to the Makati Business Club online.)
“My vision is to transform our country into one where we have lower tax rates enjoyed by all, rather than have some enjoy absolute tax exemptions while we burden the rest of the economy with very high tax rates…We will, therefore, pursue the rationalization of fiscal incentives early in my administration.”- BA3
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When pressed about his seeming lack of substantive bills to show for his legislative career, Noynoy always points to his work on the budget. It is as if he will stake his presidency on his ability to manage it.
Here he is ringing all the right bells, sounding out all the right notes. While it is a bit disingenuous to say he will not raise taxes when in actual fact, retracting fiscal incentives is the equivalent of raising taxes, no one can fault him for it. This whole “no new taxes” debate is misplaced anyway.
The drop in the tax effort (tax revenues as a % of GDP) shortly after it had risen to respectable levels after the eVAT law was passed, was not due to evasion (since VAT creates a paper trail and is easier to administer), it was Congress using tax perks presumably to assist special interest groups in the Special Economic Zones.
This leaves the executive with two options for running while standing still. Either raise the VAT rate even more to 15% or keep it the same but reduce fiscal incentives. Noynoy’s policy stance is a much fairer approach, but it will require discipline and political will. His work on the budget appears to be the start of a coherent strategy towards sound fiscal governance.
As an addendum, GMA by allowing these tax perks to take effect (despite the bruises her administration suffered fighting tooth and nail to create “fiscal space”) became complicit with Congress in patronage politics. By squandering away the eVATs benefits, it put pressure on her when it was needed during the outbreak of the GFC. Restoring balance to the budget is less about fighting corruption and more about using it as a form of patronage.
Sorry, “more about NOT using it (the budget) as a form of patronage.”
there is another way.
why when deficits are so high are government employees getting 14th month pay, pay hikes, and bonuses?
and what about eliminating some government programs?
cash transfer is one
or useless bureaus/departments?
MTRCB to start with
leah, your suggestions reflect a rather populist streak based on some sensationalist news items no doubt.
The reality is that the ratio of our civil servants (ie teachers, police, etc) to the entire population in the Philippines is much lower than our ASEAN neighbors and their average salaries are much lower too. Our public wage bill has averaged 33-5% of total spending and the growth of wages has been mild in recent years which reflects the growth of our population. Weak incentives and morale is another root cause of poor governance.
Meanwhile special interest lobbies are gaining Php60B worth of exemptions without spurring investments. This is roughly equal to the entire DA and DAR allocations to make up for that. Conditional cash subsidies to keep kids of poor families in school has been shown to be even more effective than agrarian reform spending as a poverty alleviator according agricultural economists. It has been politicised, but that doesn’t detract from its success.
I dunno but Villar’s speech, if a policy one, sounds like a tax and spend vanilla to me, whipped up without thinking. He speaks boldly about possibly creating new taxes before the big business community (with his tongue in cheek after the tax scare, then followed by a wink and a whisper): “Off the record, lang, not you of course. I only mean VAT, maybe tax on texting, that you could always pass on.â€
On the other hand, Noynoy’s promise to confront the looming crisis is something he could do as president without wooing congress: tax admin and collection, and putting away some big-time smugglers and tax evaders (who are “not faceless and unknown†to him). And on fiscal discipline, he plans to pursue “rationalization of fiscal incentives early in (his) administration.”
You could be right, Cusp, that Noynoy’s “work on the budget appears to be the start of a coherent strategy towards sound fiscal governance.†We need law enforcement, not more laws on the shelf.
Moving forward with BPO and FDI? What’s novel about that? How come the CEO who claims not to need any learning curb is not for instance talking about the future role of homegrown big tickets in his plan? Perhaps, he has real estate in mind? Exciting.
Bro Velarde must have been a canary in his previous life. Instead of oxygen though, his sense of olfaction is tremendously developed for gold.
Aquino and Villar must be working off different GDP estimates, i.e. 6.6 Trillion & 8.5 Trillion respectively. What accounts for the discrepancy?
I agree with your observations…
Very objective analysis. The speakers of course have to be taken into a count: a self-made man against a person who depends on reflected light, and who’s never in his entire life shown independent thinking.
Carlos,
Aquino is probably using the GDP of 2007, while Villar is using the GNP of 2009. Of course no one knows for sure what the economy will produce in total this year. These are just estimates, but a deficit of 2.5% or lower would be considered sustainable as long as we keep growing since we can just inflate ourselves out of debt.
That would roughly mean a reduction of 60-80B worth of deficit spending. This could be achieved through a rationalisation of fiscal incentives (60B saved) and proper oversight of collection and spending to prevent a budget blowout.
“and who’s never in his entire life shown independent thinking”, you are so pompous and arrogant Mr Brotarlo! How can anyone make such an uncharitable comment? Living a life of integrity and honesty for 50 years, without even a hint of scandal reveals more independent thinking than amassing a billion-dollar fortune founded on ruthless business techniques, not to mention exploiting political power for personal gain.
Thanks CuspOnline but the quote specifically mentioned GDP (not GNP) in the case of Villar and in the case of Noynoy, the quote specified ‘as of last year’.
Then your guess is as good as mine 🙂
Noynoy is a politician like everybody else. You can’t believe that “read my lips, no new taxes” spiel. It’s a tired old line. When he changes his mind, he will point out that it was necessary. Just as he has relented about Charter Change. Now Noynoy says: “I am going to set up a commission to determine the need for a change in the Constitution”.
you can look at his interviews since 2007. his point is the charter change debate in many ways is artificial. so to settle it once and for all he wants a thorough nationwide consultation.
Initially I had the same sentiments, go for the lesser evil that is Noynoy. Then again, who in our present pool of political leaders is a saint?
Lately I’ve been rooting for Noynoy because so many snooty, snobbish, pseudo intelligent, know-it-alls say that he can’t do it. That he has no experience, no strength of personality, is a special child, not smart enough, not fierce enough, etc, etc…not much different from what they said about Cory, what they said about Erap, and FPJ. But when you talk to disinterested economists, they will admit face down, Cory’s first two years of office enjoyed a significant positive GDP growth (no window dressing), and Erap’s time was a time when the military was quite happy without the need for too much better spreading…
The way most people look at Noynoy now, is probably the way a lot of foreigners look at us initially, that we dont’ measure up, and we have to work doubly hard to make them realize their mistake. Its the same way we, members of the civil society, shady businessmen, corrupt military officials, and other shady characters looked at FPJ when they planned and rationalized cheating in the elections…that it is better to manipulate the outcome of the elections because the people don’t know any better…the snobs…
…because at the time, Gloria was the poster girl for leadership, eloquent, knows exactly what to say, and we took her word for it…much like Gibo, or Villar, or Gordon…she had a resume longer than our arms…but look where we are right now?
How hard is it to accept that character, integrity and sincerity are not a monopoly of of the valedictorians, magna cum laudes, topnotchers…and that we have to open ourselves to the possibility that even from the ranks of the public school will rise the next president someday…
Listening to my training and experience, Villar is the sure victor…in this country, where the majority is poor, an indecent amount of money can buy anything, maybe even the presidency…thats why I’m voting for Noynoy, even if he doesn’t win, I’ll still deny Villar and his ilk of toasting his success of buying everybody’s vote…
…of course, I’ll still play golf Tagaytay Highlands after…
Villar’s modus in his business dealings involved a lot of illegal deals. To get a good view of how he does business, read this:
http://boymejorada.wordpress.com/2010/02/13/illegal-conversion-is-key-to-villars-fabulous-riches/
According to former DBM secretary Ben Diokno, Congress has gotten into the habit of capping debt repayments in order to increase their pork allotments. This artificially lowers expenditures on paper, but leads to higher deficits because the debt payments have to be made in full. And Malacanang has played along, it seems by not exercising its line item veto prerogative.
This leads me to ask the vital question: will an Aquino-Roxas administration be able to crack the whip on Congressmen knowing that it needs to woo Lakas Kampi members away from supporting a GMA speakership?
I don’t know how artificial Noynoy considers Charter Change. His backtracking on this issue seems very clear. When the news tells you that:
“Liberal Party presidential candidate Benigno Aquino III on Monday vowed to create a commission to study constitutional amendments within his first 100 days if he is elected president, saying safeguards need to be built into the Constitution that his mother, former President Cory Aquino, helped draft.”
That doesn’t sound like it’s just putting one’s finger up in the air to settle an “artificial” argument. Admitting infirmities in the Constitution and saying that “safeguards” need to be built into it, that’s unequivocally stating that Cory’s Constitution is flawed. 🙂
Carl, setting up a commission to tackle a sensitive issue is just bureaucratic-speak for saying “not interested” or “no comment”, a way to pass the political hot potato. After all, cha-cha is something that requires a supermajority in both houses (based on a common sense reading of the consti’s provisions). So a non-binding commission report which has already been tried by two successive presidents will go nowhere. The report will sit on shelves and gather dust.
“These are just estimates, but a deficit of 2.5% or lower would be considered sustainable as long as we keep growing since we can just inflate ourselves out of debt.” Idiot pundit
Anyone who says it would be wise to simply inflate debt away has to be an idiot. Debts are future taxes.. Corrupt governments have been using inflation to tax their citizens by creating inflation.
That is the worst form of taxation on this planet.
Where do people get their idiotic ideas?
thecusponline said:
“Carl, setting up a commission to tackle a sensitive issue is just bureaucratic-speak for saying “not interested†or “no commentâ€, a way to pass the political hot potato. After all, cha-cha is something that requires a supermajority in both houses (based on a common sense reading of the consti’s provisions). So a non-binding commission report which has already been tried by two successive presidents will go nowhere. The report will sit on shelves and gather dust.”
Thank you for proving my point, cusp. Politicians will say anything and do anything to get themselves elected. They will even repudiate the very Constitution their mother had helped to draft and then make seem that it’s “bureaucratic speak” for something non-committal. Isn’t that the hallmark of a trapo? He! He! This Noynoy is a “cacique” and a “trapo”. Well, they add up. That’s been the history of the Philippines! Niloloko lang tayo ng mga “cacique” at ng mga trapo. 🙂
he never said it wasn’t flawed. both of you are arguing from two sides that haven’t even bothered to figure out what the guy you’re arguing about himself said.
so in 2007 when he’s running for the senate his views are as follows:
At the ANFace to Face forum he said,
before october last year he’d also been quoted by the Wall Street Journal,
and the “why” is precisely what a commission would address.
you can go through other statements of his:
Also,
Still proves my point, Manolo. Noynoy will say anything to get himself elected. Even if he has to repudiate his own mother. He is just a trapo. Nothing more, nothing less. He is not any greater than anybody else in the field. Never was. He never proved himself. He always had that sense of entitlement. He always thought that all the gravy would go his way. By way of entitlement. He is typical of the elite. Manolo, admit it. This guy is a cacique of the worst kind. He thinks the world owes him for nothing he has done to deserve it. He thinks that by being Cory and Ninoy’s offspring, the world owes him a living! 🙂
Holyfather,
You’re being ridiculous, calling my comment on Noynoy (well justified and it wasn’t even mean) uncharitable when you so carelessly condemn Villar (who I will not vote for) as if he’s already proven guilty.
Which is biggest among the following: revenue leakages from corruption, unnecessary spending, uncollected taxes, potential revenues from a tax increase, or potential FDIs? Which action leads to less GDP (tax increases for instance apply to which sectors) It seems there are not enough givens.
How about the working middle class who gets taxed more than an SME? It’s clear to me that there are those differences between the two but I’m not very good with economics — can someone explain which policy will work better?
What I understand from the article is Villar is holding his cards and not revealing much, being cunning and diplomatic by not promising everything without review, and Noynoy being clear on what he wants to do (which Dr. Nye fears that maybe overpromising) Who benefits best under their policies and how will either approach affect the various segments of society?
i think this is what you want to believe, because to acknowledge that it or he could be different would of course demolish the foundations of your belief. since you have categorized a certain subset of the population you cannot of course compromise on that boxing-in of people otherwise it would be fatal to your world view.
Manolo, if Aquino was sincere about his tax strategy why didn’t he do anything about it in his time as senator? If he thinks there are already devices in place that could significantly help, why didn’t he call attention to it in the senate so that they would be given proper support? Sayang naman ang panahon.
Manolo,
I don’t think I was having an argument with Carl at all, just stating the obvious about the supermajority hurdle.
Manolo and Carl, while it is too deterministic to say that because Noynoy comes from a wealthy, aristocratic family that he will automatically behave in a way that serves their interests. However, it is equally unjustified to assume that he won’t. I personally believe the handling of Luisita is a litmus test in a way.
There are 10,000 families whose prospects in life would improve not ten years from now, but tomorrow with the simple stroke of a pen (the property liens not withstanding). Killings, corruption and poverty not to mention social injustice have resulted from the conflict over the conversion of parts of the estate from agrarian to commercial purposes.
Although his share in the conglomerate is but a tiny fraction, it still does not mean he can walk away from the problem, while advocating good governance, anti-corruption and addressing poverty in other places. He needs to show true leadership over his family and community. That would prove his capacity to lead the country in my humble view. I am waiting for an unequivocal pronouncement on his part. Until then, I’d have to reserve my decision on whom to support.
it’s the difference between a senator who has specific advocacies to pursue and has to pursue them in legislative work and a presidential candidate who is asked to put forward policies and plans for the entire machinery of government.
Isn’t the latter an extension of the former?
MLQ, what are you saying. These devices that’s supposed to minimize corruption are not his advocacy when he was senator?
I think that you are either delusional, Manolo, or you are simply embellishing facts to put some polish to your candidate. You want to believe a lot of things about Noynoy which simply aren’t there. He never proved himself. Perhaps never had to, because he always had that silver spoon in his mouth. He never even had to hold a real job to earn a living. He just lived off his family and his mother’s cronies, such as Tony “Mondragon” Gonzalez. He lived off the fat of the land of Luisita, being on its payroll, while the tenants were being squeezed like sponges. Those are facts.
And the fact also is that Philippine politics has been blighted by the existence of the caciques and the trapos, who dominated it and bastardized it for years. And, with Noynoy, it’s a “two-fer”. For the price of one, you get BOTH a cacique and a trapo. Maybe that’s the bargain that’s behind your selling point. 🙂
hey nobody has answered my question yet, who benefits best under each of their policies and how will either approach affect the various segments of society? Can someone explain which policy works better? Like I said I am not very good with economics so I really would like to know…
Nobody knows the exact figure when they talk about potential revenues and lost revenues. Much of it is just extrapolated. It’s mostly educated guesswork. It’s very hard to figure the exact extent and amounts lost to corruption. Figures bandied around are simply guesses.
It’s not even that clear where the biggest revenue losses are. Is it in bloated public work contracts? Certainly that is a major item. There are huge syndicates out there and they are well-established, with connections to all political candidates.
Is it in smuggling? There’s a huge business in fuel and oil smuggling, amounting to billions of pesos annually. There’s food, clothing, appliances, vehicles and lots of other stuff smuggled in from China and elsewhere (rice and sugar included). Those are big revenue losses, too. Smuggling is very difficult to control because it also results in some benefits for the public, mainly the lower cost of goods.
Is it in the failure to collect excise, income and other taxes? That’s a consideration. But the BIR certainly has been squeezing a lot of businesses and individuals lately, and there’s a huge outcry. Taxes are not well-liked because they increase the cost of doing business.
What about pork barrel? Politicians will certainly complain if pork is cut. But so will a large part of the public. Because a good portion of the pork is distributed to different constituencies, albeit with much of it sticking to the politicians’ fingers. But it is a redistribution of wealth of some sort, and it does have some multiplier effect, although in a very inefficient and very roundabout way. But I think that there’s no question that pork barrel results in huge waste of money. It’s finding an alternative that’s the problem, because it’s the fat that greases the political machineries.
And much of the corruption is at the local level. Can a national official control the local officials, especially if these local officials provide logistical and statistical support during elections? The Singsons, the Ampatuans and all those political dynasties and warlords are there for a reason. There’s a symbiotic relationship with the national government, that’s why there has been high tolerance for them. Cory Aquino decried these dynasties and warlords, but she made her pact with them anyway. Would any other president be different? I can only hope so, but I’m not betting on it.
parirami,
As the ZTE NBN scam has demonstrated, the budget is just the tip of the iceberg when it comes to patronage in our country. Sure there is pork and other insertions are present, but it is in the off-budget items, where a larger potential for profiting comes from.
Through govt to govt borrowing (as opposed to the deficit spending which is financed through the commercial money markets) a lot of projects escape the scrutiny of the budget process. That is why so many legislators don’t even bother attending budget hearings. It is not where they derive their largesse. Off-budget items, payoffs from illegal activities and from selling government regulations or incentives to special interests can provide more handsome rewards.
So a promise not to increase taxes or to control spending does not necessarily equate to a lowering of benefits to opportunistic operators.
no what i’m saying is the focus can be narrower in the senate although much broader by virtue of representing a national constituency in the first place. but when running for president you’re required to articulate policies from a to z.so in the senate while tackling oversight and corruption you can concentrate your energies on specific advocacies such as increased oversight on military procurements or on oversight of line departments but when running for president you will be asked for a comprehensive policy as an administration and not legislator who exercises oversight. the orientation is different.
like i said you will believe what you want to believe. with the circumstances you put forward he is no different from amany members of the middle and upper classes working in many companies here or who derive family income from rentals, farms, fishpens, etc. and it is how you qualify what is a real job because by that measure no job in a family corporation or where you or your family knows anyone is a “real job”. without even delving into the actual job, the job itself is dismissed out of hand due to the identity of the person. and if you then paint things with an even broader brush, it ignores those who do try to conduct themselves conscientiously or without regards to distinctions that should matter. what is being sought is public office and the proper measure is the handling of public office -particularly in the light of how public office has been handled not just by the contenders but those who’ve created the present situation where all the talent is dissipated in trying to stave off accountability: for example whether there has been any taint of irresponsibility or fraud or theft or criminal behavior in the conduct of public office. in the end the comparison that should matter is better someone who is careful about the parameters that govern official action to someone who claims accomplishments based on holding nothing sacred. or put another way it is precisely the so-called accomplishments and track record of some that make selecting someone else untainted by such things attractive for public office.
@carl, Cusp thanks for clearing it up for me.
@mlq3, I finally understand your contention although I can’t understand why you could presume that I have my beliefs set already. (I hope I’m mistaken that it’s me you’re replying too)
It comes across to me as a dismissive opinion about how I view things, and sadly it’s this sort of rhetoric that is hard to take for our many kababayans – that their question won’t matter because ‘they will believe what they want to believe’. No, our minds our not set and they don’t refuse to learn from experts. We are careful though about who we listen to and careful about agendas … and sometimes that’s the one exploited. People can still be swayed, but will logic hold well without the proper approach? It’s something to think about.
How do we explain this to people in the other socio-economic classes whose interests and priorities are very different from the public officials? I think this is where the campaigns of villar and noynoy are battling it out now or at least where they need to work on (D&E as you say).
Lastly, if we can’t fully predict the economic impact of each of their policies, how do settle the score between the two (or three in my case)?
no i was replying to someone else concerning viewing things through the prism of class.
@ manolo, i was really happy to know that it wasn’t addressed to me. appreciate the immediate reply. thanks!