* My article in BusinessWorld last July 4.
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PRESIDENTIAL VETO OF BULACAN ECOZONE BILL
One big news on day 1 of President Ferdinand “Bongbong” R. Marcos, Jr., is his letter to the Senate dated July 1 expressing his veto of House Bill 7575, “An Act Establishing the Bulacan Airport City Special Economic Zone and Freeport” (Bulacan Ecozone).
Among the reasons given are that Bulacan Ecozone “poses substantial fiscal risks and conflict with other agencies’ mandates and authorities… Ecozone Authority has rule-making powers on environmental protection not found in other Ecozones, … [and] close proximity to Clark Special Ecozone.”
I initially saw the logic of those reasons. I also saw the 12-page Memorandum of former Finance Secretary Carlos Dominguez to former President Rodrigo R. Duterte why he should veto that bill. To see the bigger picture, I read the 12-page bill (third reading, May 30, 2022, version).
Being an advocate of free trade, more business competition and less government intervention, I actually like that bill. Here are three reasons why:
One, it will increase competition among Ecozones and Freeports. In particular, the Bulacan Ecozone will compete with nearby Clark, Subic, Bataan, and other Ecozones. In the 1990s, the Americans left Clark and Subic with their sprawling infrastructure, including runways and the Subic seaport. And 31 years after, Clark and Subic have improved but they are not as developed as one would expect from real freeports (like those in Hong Kong, Singapore, and Dubai).
Two, it will limit the long interventionist arms of national bureaucracies that affected Clark and Subic from becoming real freeport (these include the Bureau of Customs, Department of Environment and Natural Resources, and the Department of National Defense). Bulacan Ecozone will operate as a separate customs territory and will have internal security and military forces for national defense.
Three, it promotes provincial economic competition and the principle of subsidiarity (which states that if a local authority can perform a function, it should not be taken by a higher or national authority). These are consistent with the federalism philosophy, which Mr. Marcos should adhere to since he ran as the candidate of the Partido Federal ng Pilipinas party.
But the previous leaderships of the Department of Finance, the National Economic and Development Authority, and other agencies did not like more ecozone competition, did not like curtailment of their bureaucratic interventions so they recommended a veto by the previous Duterte administration.
Now that the new Marcos administration has issued the bill’s veto, it has to be refiled in the new Congress. But beyond this, Congress should also amend the charters of existing ecozones so that they will have similar liberal, free trade and subsidiarity policies as the proposed Bulacan Ecozone to equalize powers and responsibilities, privileges and accountability, and empower them toward greater ecozone and freeport competition in the country.
More incentives, more private enterprises, more job generation, broader tax base as national taxation laws like RA 11534 (CREATE law of 2021) will still apply. We need more business competition and innovation.
THE BEN DIOKNO BOOKS
Also last week I was able to get copies of the four books (published in 2020) of new Finance Secretary Benjamin Diokno.
Composed of his past columns in BusinessWorld and Manila Speak from 2012 to 2016, the four books are: (1) Holdap: The truth about pork, (2) State of The Nation: A Retrospective Look into the Macroeconomic Issues of the Philippines, (3) Governance: Analyzing the Economic Performance of the Estrada, Arroyo & Aquino Administrations, and (4) Through the Looking Glass: A Look into the Public Economic Issues in the Philippines.
In one article, “A broad-based, comprehensive tax reform is the only way forward” (BusinessWorld, Sept. 16, 2015), Mr. Diokno argued that “the core elements of a broad-based, comprehensive tax reform program are: lower income and corporate income tax rates, broader corporate tax base by rationalizing fiscal incentives, higher value-added tax rates, and higher real property tax.”
I agree with lower personal income tax (PIT) and corporate income tax (CIT) rates and a broader tax base. But I do not agree with the higher VAT rate. We should instead have a lower VAT rate and fewer or zero VAT exemptions — except raw agriculture and fishery products — to broaden the tax base. And real property tax rate should be lower on lands that have optimal use and generate more jobs and more business transactions per square meter of land.
Mr. Diokno showed the comparative income tax rates in the ASEAN from 2010 to 2013. I use his numbers below and expand it to 2022 data. The good news is that in the Philippines, PIT rates for middle income people have declined under RA 10963 (TRAIN law of 2017) and CIT under RA 11534 has declined. The bad news is that the top marginal rate of PIT has increased for the upper income people to 35% from 32% under RA 10963 (Table 1).
When people are industrious, efficient, and ambitious, and when they save and invest for the future, their income and wealth naturally increase. They should not be penalized with higher PIT for their industriousness.
Mr. Diokno wrote many articles highly critical of the overall budget and infrastructure spending under the administration of President Benigno S.C. Aquino III.
In one of his papers, “From a slow to fast-moving machinery” (Manila Speak, April 24, 2014), he showed a table on infrastructure/GDP ratio from 2011 to 2013. I use his numbers and expand it to 2021 data (Table 2). It is true that infrastructure spending under the Duterte administration has indeed expanded substantially compared to previous administrations.
I do not agree with a number of points raised by Mr. Diokno in his four books but they are worth reading by researchers, writers and observers of economic policies. Having hindsight of the recent past will help formulate sound policies for the present and the future.
LAND TRANSPORTATION MESS
Last week, I passed by the Edsa-Ayala bus loading area: it was a horrible sight in the afternoon. The passenger queue was very long and hundreds, maybe thousands, of people had to endure the heat, dust and smoke.
When buses arrive, passengers fill them up quickly and stand shoulder-to-shoulder with little to no social distancing.
There are not enough buses. Not enough aircon vans. Not enough transport network vehicle service (TNVS) cars. Not enough motorcycle taxis (MCT).
The recent leaderships of Department of Transportation (DoTr) and Land Transportation Franchising and Regulatory Board (LTFRB) have implemented a pair of bad policies: (1) putting a cap on the number of those who can operate buses, aircon vans, TNVS and MCT, and (2) keeping the low fares of public transportation despite spiraling prices of gasoline, diesel, engine oil, and vehicle parts.
Transportation Secretary Jaime Bautista comes from a private airline company. He knows the importance of having flexibility in the number of units per destination and flexibility in adjusting fares depending on seasonal demand by passengers. He will be a good manager to modernize land, sea, and air transportation in the country.
Passengers need a respite from long queuing just to get a ride to and from work. Driving their cars may not be an option due to the high price of gasoline and the high cost of parking. Driving motorcycles or riding bicycles is not for everyone.
Removing the cap on the number of land transport companies, removing the cap on fares, and transport and fare liberalization are pro-passengers.
The most expensive transportation is one that is not available, not one where fares rise to reflect rising cost of fuel and operational cost. Hopefully, Mr. Bautista and new LTFRB leadership will have more mature views on transportation modernization.
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See also:
BWorld 547, Inflation, cement importation, and electricity concerns, June 29, 2022
BWorld 548, Taxes, cement, electricity and land transportation, June 30, 2022
BWorld 549, Inflation, transportation, internet, and outgoing secretaries, July 05, 2022.
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