All-time low unemployment, revenue enhancement against illicit trade
August 8, 2024 | 12:02 am
My Cup Of Liberty
By Bienvenido S. Oplas, Jr.
Yesterday the Philippine Statistics Authority (PSA) released the labor force data for June 2024, and we saw that the unemployment rate was only 3.1% which tied with December 2023’s level — the Philippines’ all-time low unemployment rate since the 1980s, and possibly since the 1970s although records from that period are scanty or not available.
So, I compared the Philippines’ unemployment rate with that of other Asian countries, and with major economies of North America and Europe. Not only is ours among the lowest, but ours has had the biggest drop over the last two years, from 6% in June 2022 to 3.1% in June 2024. In contrast, some countries experienced an increase over the same period, like Sweden, Germany, the UK, the US, and Canada (see Table 1).
This is a big economic achievement by the Marcos Jr. administration in general, and the economic team in particular.
It also serves as further proof that the high GDP growth in 2022, 2023, and the first quarter of 2024 was indeed job-creating growth and not the “jobless growth” usually claimed by some detractors.
In a Viber message to this writer, Budget Secretary Amenah F. Pangandaman reiterated the optimistic economic outlook of the Philippines, noting that “our prudent public spending especially in hard infrastructure is bearing fruit, helped improve our people’s productivity and helped our domestic businesses to create more jobs, reduce poverty in the country.”
Last Monday I briefly watched the presentation by the House of Representatives’ Development Budget Coordination Committee on the first day of public hearings on the 2025 budget. The secretaries of the departments of Finance (DoF) and Budget and Management, the head of the National Economic and Development Authority, and the central bank governor plus their respective officials were there.
Finance Secretary Ralph G. Recto gave an opening presentation and highlighted, among others, that “the DoF hiked the government-owned and -controlled corporations’ (GOCCs) dividend rates to 75% from 50% in 2024 as among the major sources of non-tax revenues…. Total revenue collection from January to June 2024 grew by 15.6% amounting to P2.15 trillion. Of which, tax collections increased by 10% to P1.84 trillion, while non-tax grew by 63.3% to P314.2 billion.”
On July 25, I attended the First National Anti-Illicit Trade Summit at the Manila Hotel, organized by the Federation of Philippine Industries (FPI). Dr. Jesus L. Arranza, chairman of FPI and Fight Illicit Trade (FightIT) noted in his opening message that a study they commissioned showed that the government is losing around P250 billion/year in value-added tax (VAT) due to smuggling.
Since VAT is 12% of the price of imported goods, that means around P2.3 trillion worth of smuggled products are sold here annually and unfairly competing against locally produced products in the domestic market.
I checked again the revenue performance of the government and saw that overall tax collections are increasing, except excise tax which experienced a revenue decline in 2022 and 2023, and possibly also this year. The main source of revenue losses is in tobacco tax collections, which peaked at P176 billion in 2021 and went down to only P135 billion in 2023, and seems on its way to declining further to around P120 billion by the end of this year (see Table 2).
Finance Undersecretary Charlito Martin Mendoza also gave a presentation in the same forum. He said that the Bureau of Internal Revenue and the Bureau of Customs are campaigning against smugglers and illicit traders through the “BRAVE” project: B (Border Security Enhancement), R (Revenue Collection and Protection), A (Adaptive Regulations and Compliance), V (Vigilant Enforcement Operations), and E (Effective Engagement with Stakeholders and Inter-Agency Cooperation).
The government — the DoF and Congress in particular — need to address this big conjoined issue of sustained illicit trade and smuggling and high tax rates (like a VAT rate of 12%, a tobacco tax of P63/pack and rising yearly) which are among the key factors why legal products are getting more expensive and the alternative smuggled products are getting more affordable. A downward shift in tax rates, especially in VAT (our 12% is possibly the highest in Asia), should be considered in exchange for the removal of many VAT exemptions.
Finally, the Philippines’ high inflation remains a big hurdle in our people’s economic advancement.
The big flood in the National Capital Region last July caused the destruction of many properties and a temporary shortage of some commodities. I saw an empty bread shelf in one of the SM groceries in Makati that day of heavy flooding, plus a long queue of shoppers stocking up on mostly food items for fear that another heavy flood might happen again soon.
I expect the country’s inflation rate to taper off in the last five months of this year as most harvests in the first rice crop are due starting late August to September, with the second crop due for harvest in December-January.
