"The disease is in so deep, I see no cure in this lifetime."
It was almost like drunken ranting, the three of us, born in different decades, united in our despair. We were one in the general diagnosis that this little group of islands is rotten. And it seemed nothing could be done but jump ship or sink with the boat.
It started, as the past Wednesday evenings since the beginning of this semester, with an exchange of ideas on theories of public finance and fiscal policy. There is effort to keep it cool and academic, but as the evening wore on, the biting commentaries came as bone-chilling as the cold air-conditioning. While my fascination for how these things work is, at this point in my life, insatiable, it seems the deeper I dig, the more I realize how impossible it is to see past so much filth unearthed. I know I am fast approaching the breaking point. That moment when you’ve seen and heard and learned so much, you no longer care.
Syntax of Sin Taxes
Since eleven professors from the UP School of Economics have declared the Philippines in debt crisis last August, the media mileage has come and gone as glibly as the December pronouncement of the Arroyo administration that we are no longer in danger. It’s as if to say, “We are no longer in dire straights, so ditch the money-pinching because some ol’-fashioned Christmas spending would do everyone some good.”
More than the belt-tightening and the “heroic” dole-outs of certain people from Congress, an overhaul of the outdated and notoriously corrupt tax system would have done the trick. But in the Philippines, nothing is ever easy.
“Sin taxes” were expected to generate billions of pesos in extra income, but mainly, so we can show our creditors we can pay. Various protests were made, the dumbest of which was: “Sin taxes are anti-poor!” What in the holy fuck. That’s why they’re called sin taxes. They’re supposed to levy a high fee for indulging in things that are baaad for you; namely alcohol and tobacco. Indeed, we’ve one of the lowest prices of alcoholic beverages in the region, maybe even the world. God forbid our tambays and kanto-boys be deprived of their only means of rest and relaxation. God forbid we save some lungs of those who cannot afford hospital bills, from putrefaction.
The sin taxes bill was swiftly “handled” in December of last year and a watered-down version is the result, and indeed, was expected. Now there is all this ruckus about a 20% increase in VAT. With the downgrade in Standard and Not-So-Poor’s credit rating, the Philippine government is desperate to raise capital not only to pay for our $54 billion debt but to keep the state-apparatus running (if not working). The whole atmosphere in this great capital of ours is DESPERATE.
Fiscal Policy 101
Money is the root of evil. Money makes the world go round. Money is also the lifeblood of States. Capital accumulation, no matter which ideology, is key in development. Without money, there is no State. And since another way of politically and socially organizing ourselves has not yet been invented, then there is no escaping our government.
There are three ways for government to raise money:
Contrary to what some politicians might like to project, those waiting sheds, roads, elementary school-buildings and basketball courts were not donations from their good and kindly hearts. And so we should not feel indebted to the current politico-of-the-term whose names are boldly emblazoned on their outstanding accomplishments. We shouldn’t be thankful for useless decorations and signboards because we, all three million of us income taxpayers, paid for them.
Since the Marcos years, borrowing seems to be the preferred mode of raising funds for national use. And later, I will explain why.
3. Printing Money
While printing money may be a useful short-term solution, no sane government will risk inflation. Too many peso-bills running after a fixed number of goods is not good.
The Philippines, like other developing countries, has difficulty in “capital formation” or simply--making money. This is due to:
1. Low levels of profits, incomes and savings
2. Widespread poverty: most of the incomes will be spent and not enough will be put in banks. Add to the fact that Filipinos do not seem to have the “culture of savings.” Instead we have the culture of mindless consumption—a nasty effect of our off-colored colonial past. Well, among other things.
3. Rich people in our poor country have greater propensity to consume luxury goods, engage in real estate speculation or foreign exchange, all of which are not productive. In short, we’ve an elite as irresponsibly waldas as the rest of us. Since they lead, who are we not to follow?
And so the vicious cycle of low incomes—high consumption—low savings—low rates of capital formation continues while no less than a senator is wasting precious national resources on the investigation of the Chief of Police’s “rude” behavior. What legislators like him should concern themselves about should be provision of things like; social overhead capital. Although I doubt this certain senator, his senator mother, or even his ex-president father, has even heard of such.
What is social overhead capital (SOC)?
SOC is education, health, power and irrigation facilities, roads. Since no private investors will sink down huge amounts of money for these public goods, then the government will have to do it. SOC is necessary for private economic activity to prosper, indeed, for all of us to function. It improves human capital. In the Philippines, SOC was miniscule to begin with, and now rapidly dwindling if the premier State University’s budget is any indication.
Of the three ways of capital formation mentioned above (taxation, borrowing, printing), taxation is the most effective, but also the most difficult. Why? Who in her right mind would voluntarily give up her hard-earned money to be given to the openly corrupt State? Nobody. And so every month our taxes are automatically deducted from our salaries through direct taxation and all goods we consume through indirect taxation or Value-Added-Tax.
While in other countries tax payment is a social contract; a binding act of trust between a government and its people, in the Philippines tax payment is a painful, agonizing, excruciating process. Who wants to make contributions to the payment of the Mayor’s new sports car? To the District Representative’s new mansion? To the Governor’s new mistress?
Why should we freely and whole-heartedly part with our peso when there are alleged billion-peso tax evasion cases of certain high-profile rich people? Oh, the Filipino rich. They who are most susceptible to taxation also have the means and power to evade them.
The numerous incredibly poor don’t pay taxes. The many poor engaged in the underground economy don’t pay taxes. The microscopic middle class who can’t avoid taxes have been and are continuing to flee the country, and the rich don’t pay taxes and are not taxed enough. Well then, how will the State finance anything? Thank IMF and international creditors for foreign loans.
While taxation is the most effective means to raise money, Borrowing is the easiest. How so?
1. Public Borrowing allows debt payment to be delayed. Indeed, payment is deferred to “future” taxpayers, i.e. unborn Filipinos who are not here to protest bearing such burden.
2. The government that does not tax current tax payers (a.k.a. voters) incurs a political boon to the present administration (a.k.a “pogi points). It also passes the political burden to future governments to make the painful tax collection.
3. A politician need only concern himself with his current term. A politician will borrow now to make ends meet and finance government activities. To hell with interest rates and the future. When the time to pay comes, we’d all be dead anyway.
Given this logic, what government will not resort to borrowing when it can pass the burden of payment to future generations? Will the Philippines ever re-pay its $54 billion debt? Probably never. Will we at least reduce it? With peso devaluation, probably never.
Debt isn’t an evil thing to be abhorred and avoided at all costs. Debt can be good because it allows expansion of consumption possibilities. Debt is useful if used in productive activities, invested in infrastructure that will generate money to pay the debt in the future. Have we made our debts work for us? NO. A classic example is the $1.2 billion worth nuclear power plant in Bataan that has not produced a single watt of energy.
Ignorance is bliss, is it not? This way I could look to the skies in frustration and beg for the Lord's mercy rather than look to my fellow women and men for answers. I do not have to lament missed opporunities and human frustrations. Or I could simply jump ship and join the throngs fighting tooth-and-limb to migrate.
There might be hope in the Filipino diaspora. But often the Filipino diaspora is forgetful of its roots and offers nothing but apathy, or worse, contempt for its former home. If this doesn't speak of a fundamental flaw in all of us, I do not know what does.
If they find it so easy to cast off their Filipino citizenship, all too eager to be Americans, Candians, Australians, Europeans, then what is the Filipino worth?