Fat Free Econ 55: The President's 5th SONA and Market-Oriented Reforms

* This is my article yesterday in interaksyon.com.
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Overall, the President's State of the Nation Address (SONA) was good. More statesman-like, less combative. He mentioned several liberal and free market-leaning policies, which is good and consistent with his party affiliation. But there was also an overall hangover belief that government can do and will do almost everything for the people.

Some liberal and free market reforms that the President mentioned in his address are the following:

1. More airline competition as a result of ICAO, European Union (EU) and US Federal Aviation Authority (FAA) upgrade of Philippine aviation security. Thus, more flights between Manila on the one hand, and Europe and the US on the other can be expected

2. More labor conciliation via Department of Labor’s Single entry Approach (SEnA), resulting in less strikes and industrial conflict, which will help attract investors.

3. More competition and less monopolization in Department of Public Works and Highways (DPWH) project contracts after the removal of letter of intent in public works bidding.

4. More competition in PPP projects like the Mactan-Cebu International Airport (MCIA) and NAIA Expressway. Winning bidders paid government a premium amounting to P14 billion and P11 billion, respectively.

5. Various infrastructure projects that will be undertaken by private developers at little or no cost to the government, such as (a) Tarlac-Pangasinan-La Union Expressway (TPLEX), (b) Metro Manila Skyway 3, (c) Kaliwa Dam, (d)  Laguna Lakeshore Expressway Dike, (e) LRT South and East extensions, (f) Busuanga Airport, and so on.

The President though made this opening statement which set the tone for the rest of his address: "It is as if you are watching two hundred TV channels at the same time. You need to understand not just what is unfolding before you—you also need to know what happened before, and where it could all lead.… you must have a response for every question, suggestion, and criticism—and you must have all the answers even before the questions are asked."

This is not so comfortable to hear because the President or the government is implying that they are playing God who knows everything and can provide answers to everything. It can be an invitation to central planning. I have no intention of attacking the President but would rather that he mentioned in his SONA, or in future speeches, things like the following.

1. More jobs were created by the private sector as the government has reduced business taxes and bureaucracies and other difficult/complicated requirements.

2. The projected power crisis starting next year can be addressed by DOE and other agencies stepping back from too many requirements and allowing more private power developers to come in with minimum restrictions and permits to submit.

3. Rice prices can go down by (a) deregulating rice importation and allowing more competition among legitimate importers and (b) reducing or removing the rice import tax of around 40 percent (previously 50 percent). The President mentioned that even rice importation, which should have been left to the private sector in a competitive environment, must remain: "This February, the NFA Council approved the importation of an additional 800,000 metric tons, in fulfilment of our buffer stocking requirement… This July as well, we approved the immediate importation of 500,000 metric tons of rice through open bidding. The NFA also has the standby authority to import an additional 500,000 metric tons to prepare for the effects of calamities on harvests and rice prices."

Government monopoly or full control of rice importation is so 80s or even early 90s, before the World Trade Organization (WTO) was created in 1996. We are stuck in a Jurassic philosophy that government must continue its rice importation monopoly. The protected groups in the government, both at NFA-DA and their accredited private importers, are the beneficiaries of this faulty policy. Rice should be as cheap as possible. If cheap rice should come from Vietnam, Thailand, Cambodia or India, so be it. Government should reduce or abolish the high import tax and abolish the NFA monopoly. The NFA can continue as a regulator but not as player and proprietor at the same time.

4. No need for a supplemental budget for 2014 to evade the DAP controversy. Additional budget request looks questionable. The total budget in 2013 was P1.88 trillion. This year, it is P2.41 trillion (P 1.61 trillion new appropriations + P 0.80 trillion automatic appropriation), or P530 B higher than last year's budget. This is not enough? Half a trillion peso increase in just one year and not yet enough?

Table 1. Outstanding Debt, Interest Payment and Total Expenditures (in billion pesos)

Sources: (1) Bureau of Treasury (BTr), http://www.treasury.gov.ph/statdata/yearly/yr_outstandingdebt.pdf.  

(3) and (4) BTr, http://www.treasury.gov.ph/statdata/yearly/yr_cor_expenditures.pdf

* DBM, General Appropriations Act (GAA) 2014  http://www.dbm.gov.ph/wp-content/uploads/GAA/GAA2014/Summary.pdf

** New appropriations P1,608.503 billion + automatic appropriations P796.029 billion.

It is true that the government’s interest payment burden has been declining. However, a P353-billion interest payment this year is no laughing matter. The public is angry at the reported P10 billion Janet Napoles plunder in over 10 years or so, but is indifferent to the P353 billion interest payment in just one year -- a big transfer of money from average taxpayers to rich institutions like private banks and bondholders, as well as huge government financial institutions like the SSS and GSIS.

5. Expanding the AFP’s pool of battle ships, navy cutters, jet fighters, combat choppers and other armaments, the huge resources to finance them should not come largely or entirely from additional taxes or huge borrowings, but from long-term lease or privatization of certain AFP/DND assets and properties.

6. Reforming the Bureau of Customs (BOC) and appointing officials who have more integrity is a good move. But as the ASEAN Economic Community (AEC) comes closer (more than one year to go) plus various bilateral and regional free trade agreements, the power of BOC to collect high import taxes and impose non-tariff measures that effectively discourage more international trade should be limited and restricted.

7. Extension of the no-timetable Agrarian Reform (AR) program or forced redistribution of certain private lands does not encourage early and big investments in agri-business and corporate farming. A Congressional bill of extended notice of coverage -- effectively an extended AR program -- should not prosper.

The President is a Liberal, not a socialist like Bayan Muna or Akbayan, nor a populist like the other political parties. Let us expect more liberal and market-oriented policies from him and his team in his remaining year.

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See also: 

Fat-Free Econ 17: SONA, the Budget and Debt, July 22, 2012

Fat Free Econ 51: Ten Things About the Meralco Rate Hike, December 28, 2013 

Fat Free Econ 52: Optimism in 2014, January 02, 2014

Fat Free Econ 53: WESM, Myths and Realities, January 22, 2014

Fat Free Econ 54: WEF and East Asia Growth Story, May 20, 2014

The President's SONA, 2010, July 26, 2010
The President's SONA 2011, July 24, 2011
The President's SONA 2011, part 2, July 26, 2011

The President's SONA 2012, July 23, 2012

Pork Barrel 13: Executive-Legislative Honeymoon and Presidential-Parliamentary Forms

This is my article today in thelobbyist.biz.

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Last Monday, before President Aquino delivered his State of the Nation Address (SONA) 2014, I noted that facebook was peppered with so many anti-government, anti-PNoy posts and complaints. Was it good? Maybe yes, maybe no. But one thing is sure: Government is force and coercion. No matter how much we complain about the government or a particular administration, we are forced, coerced and arm-twisted to contribute to its annual funding via taxes, fees, fines and mandatory social contributions.

Next time, people should NOT support new programs that expand government. Like new tax hikes unless a tax cut somewhere else is made. Like a new subsidy and welfare program unless some existing subsidy programs that do not work are shrank or abolished. Or creating a new agency or bureaucracy unless an existing agency or bureaucracy is drastically shrank or abolished.

Government has three levels -- local, national and multilaterals (UN, WB, IMF, ADB, etc.). All of them share the same characteristics. Generally wasteful, tax-hungry and always saying that "things are bad, we need more taxes and subsidies to solve them." They said that 3 or 5 or more decades ago, they say it today, they will say it 2, 4 or more decades tomorrow.

There is also an observation that Filipinos are “puro angal pero walang aksyon” (all complaints, no action). Right. We should have less government responsibility, more personal and civil society responsibility. Yan ang tunay na "aksyon". But for many activists and "reform-oriented" groups, they want "more/bigger but good government".

I think they are setting the public for more deception and disappointment. When government expands, at least 50-60 percent of the total budget and funding goes to salaries alone. Plus offices and office supplies, electricity and gadgets, vehicles and fuel, travels and trainings, etc. Very little can be expected to go to the supposed beneficiaries, like actual roads. And we are not talking about corruption and robbery yet.

People who are advocating similar campaigns are selling an idea, not individuals or politicians. The idea of less government, more personal and civil society responsibility. If many people will buy that idea, the supply of politicians who will articulate that idea will come in. I doubt though that many people want more personal responsibility. Gusto ng mga tao, painom-inom, pa tambay-tambay, at hingi lahat sa gobyerno. Pag di nabigay or kulang binigay, magagalit, susuporta sa oposisyon, at uulitin panghihingi. Many civil society leaders also support this mentality. That is why they keep lobbying for "more but good government". More government, we got it. Good government, I don't know. When Marcos was kicked out in 1986, or even in several administrations before Marcos was elected in 1965, "good government" has been the battlecry of almost all groups and political parties.

Meanwhile, this news report,  PARA DI NA MAULIT DAP | Speaker seeks creation of oversight committee to examine govt spending, referring to House Speaker Sonny Belmonte is “naku naman.” The whole legislature is created by the Constitution mainly to be the oversight body of the Executive branch. Each Committee and special Committee is supposed to perform oversight function over each Department and bureau in the Executive. To create a separate committee means the other Committees will not do their oversight function seriously?

A lawyer friend, Rey Reyes, shared bright comments. He wrote,

two ideas i wish to share ... first, the inherent powers of the State. With or without legislation, these powers are a given to any State otherwise, it will not function as such. In political theory, they are 3: taxation, police power and eminent domain. Second. In parliamentary systems, the Cabinet is made up of legislators (MPs or Member of Parliament) belonging to one party, the ruling party) The legislative and the executive are merged. In presidential forms, they are separate. Tripartite, which includes the judiciary. Oversight committees are de riguer in presidential forms. In parliamentary forms, government is dissolved and a new one elected. No need for oversight.

Bright contribution, I thanked Rey for it. And I agree, that is why parliamentary governments tend to expand much faster than those in presidential form. The Prime Minister can talk and debate with himself and along with key leaders of the parliament, they can discuss and quickly implement projects, which almost always are about new and expanded welfare/subsidies, and high taxes and huge borrowings to finance these endless subsidies. A really independent Legislative in a Presidential form should result in frequent gridlock between the Legislative and Executive, and this results in slow expansion of government. o minimize or even prevent such gridlock, pork barrel -- hard or soft, explicit or implicit -- is invented by the Executive, essentially a bribe to the Legislature to prevent gridlock and tolerate the wastes and fiscal irresponsibility of the Executive.

Rey added,

In theory, parliamentary forms work well with strong political parties which unfortunately we do not have. Parties with strong ideological underpinnings. We imported American democratic institutions hook line and sinker without the necessary basic fundamentals of party politics. The 1987 Constitution further bastardized the presidential form with the introduction of the European party list again without the basic fundamentals in place. Sad but true. That is the story of our politics in the Philippines over the past decades. Ever wonder why some are advocating for a constitutional convention to change the charter.

Personally, I like the two-party system in the Philippines before, after the adoption of the US-style constitution. The Nacionalista Party means nationalists-protectionists while the Liberal Party means globalists-free traders. Similar to the Democrat-Republican rivalry in the US. Thus, it was an ideology-based political system in the Philippines then, although many Liberals were as populists as the Nacionalistas in getting voters’ support.

I remain agnostic on the Presidential vs. Parliamentary debate. I am only interested in small and limited government, whether it is a Presidential or Parliamentary form.

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See also:

Pork Barrel 9: Are PH Government Institutions Ready for Cleansing?, April 09, 2014

Pork Barrel 10: Bloated Budget, Wasteful Government, June 02, 2014

Pork Barrel 11: Impending Arrest of Sens. Enrile, Estrada and Revilla, June 19, 2014

Pork Barrel 12: Why DAP is Wrong, July 29, 2014

UHC 25: Some Physician Stories in Hospital ERs, Wards

Below are notes by a physician friend, Doc Erwin Abueva, in his facebook wall, February-March this year. Real stories from physicians in emergency room (ER), wards, operating rooms. Some stories are funny, some are sad. Somehow they provide additional dimensions in the continuing discussions about universal health care (UHC). Thanks a lot for sharing these stories Doc. Non-physicians like me find them informative. 

11 stories, 2,000+ words, more than 4 pages long. Enjoy. Meanwhile the photos, I got from the web and just added them here.

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(1) February 6

2PM, HEMODIALYSIS Unit, Private Tertiary Hospital

Two male dialysis patients, both in their late 50's, were talking to each other. One patient is having his dialysis for 3 years already in the said hospital, while the other is a "first-timer", had his dialysis sessions in a hospital in Bulacan for 2 years.

PATIENT 1: Bago ka po dito, no? Ngayon lang kita nakita dito. (smiling).
PATIENT 2: Opo. Sa Bulacan po ako dati nagdadialysis. Lumipat na ako dito kasi sa anak kong panganay na ako nakatira. Sa kanila na lang daw kami ng asawa ko.
P1: Bakasyon?
P2: Hindi po. Naibenta ko na kasi yun bahay namin sa Bulacan dahil sa pagdadialysis. Ang hirap ng sakit natin, ubos ang pera. Ang mga naipundar kong konti unti-unting nawala na.
P1: Talagang mahirap. Mabuti na lang medyo marami pa ako savings.
P2: Buti pa po kayo. Maraming panggastos. Swerte nyo po.
P1: Ikaw ang swerte. Kasi ikaw kahit wala ka nang pera, nariyan ang anak mo nakasuporta. Ang asawa mo kasama mo ngayon, hindi ka pinapabayaan. Ako, iniwan na ako ng asawa ko last year. Pumunta na sa Amerika. Napagod na yata sa pag-aasikaso sa akin. Ang mga anak ko parehong nasa abroad. Ni tawagan ako hindi nila magawa. driver ko lang kasama ko lagi dito sa dialysis.
P2: Opo, kasama ko pamilya ko. Pero wala naman akong pangsustento sa dialysis ko. Hindi din ganon kaswerte.
P1: Tandaan mo, lahat naman tayo mamamatay din. Ang tanong lang e sinong nasa tabi mo sa huling sandali ng buhay mo...

(2) February 11

6AM, EMERGENCY ROOM, Private Tertiary Hospital

A 64 y.o. Male came in due to nose bleeding. With him was his wife and his daughter.
While the nurses are packing the patient's nostrils with gauze...

DOCTOR: Ano pong nangyari sa inyo sir? Bakit dumugo ang ilong nyo?
PATIENT: Napasubasob ako sa sahig. Mukha ko tumama diretso sa sahig.
DOCTOR: Paano pong napasubasob? Nadapa po kayo o natisod ba? Buti di kayo nawalan ng malay o napasama ang dapa.
PATIENT: Hindi naman ako natisod o nadapa doc. Napasubasob lang basta.
WIFE: Naku doc, ganito kasi yan. Pagkabangon nya sa kama, lumuhod daw sya para magdasal. Tapos bigla na lang natumba sa pagkakaluhod at tumama yun mukha sa sahig.
DOCTOR: Ibig sabihin nakatulog kayo habang nagdadasal kaya napasubasob kayo?
PATIENT: parang ganun nga yata nangyari sa akin.
DAUGHTER: Hay naku. Tatay, next time kasi huwag na kayo lumuhod pag magdadasal kayo. Pwede naman nakahiga kung magdadasal.
WIFE: At huwag mong masyadong habaan ang dasal mo para di ka antukin.

(3) February 17

3:30AM, Emergency Room of a Private Hospital
A 24 y.o. Female patient came and directly went to the Doctor's Table.

PATIENT: Sino doctor? I need to see a doctor.
DOCTOR: Yes ma'am. I'm the doctor here.
PATIENT: Bothered kasi ako.
DOCTOR: Sige po ma'am. Take a seat. Ano ba ikoconsult mo at napasugod ka sa ER ng 3AM na?
PATIENT: kasi eto o. An-an ba ito doc nasa leeg ko? Di kasi ako sure.

(4) February 22

An 11 y.o. female patient was brought by relatives due to asthma attack. He was exposed from dust while her mother was cleaning their cabinet.

DOCTOR: (to the mother) paiinjectan po natin ng antihistamine sa arm nya. And magbibigay din ng steroid thru IV. Sa ugat po papadaainin yun gamot. Magnebulize din po ang bata ngayon.
MOMMY: Sige doc kung yun ang dapat. Ok lang po.
FATHER: Ikaw magtutusok (looking at the nurse)? Galingan mo sa pagtusok. Pag pumalya yan, makikita mo.

NURSE: Sir, itatry po namin na 1 shot lang.
Unfortunately, the nurse missed his first try.
LOLO: Tsk tsk. Wala bang sharp shooter dito? Hindi ka naman pala marunong e. Yun sigurado. Yun magaling.
DOCTOR: Pasensya na po pero minsan mahirap maginsert. I understand ayaw nyo masaktan ang anak nyo. Ang mga nurses po dito experienced na maglagay ng swero. Pero wala pong hindi nagkakamali.
Another nurse tried inserting heplock but was also failed.
FATHER: Tsk tsk. Sinasaktan nyo lang ang anak ko e. Siguraduhin mo nurse! Huwag kang magtry kung di mo siguradong mashushoot mo. Ikaw Doc, ikaw na lang para 100% sure sa pagtusok
DOCTOR: Sir, kung 100% sure ang hanap nyo, hindi ko din magaguarantee yan. Sa totoo lang, mas experienced pa ang ER nurses namin sa paglagay ng swero kesa sa akin. Pwede po bang kami na lang muna at si mommy nalang dito?
MOTHER: Oo nga. Umalis na muna kayo Tatay (lolo). Doon muna kayo sa labas.
After the two men went out, the same nurse was able to insert "heplock" to the patient's hand, fortunately with 1 try only. Swabeng tusok, walang pressure.
LOLO: Buti nalagyan na.
MOTHER: Kanina pa dapat kung hindi kayo mga masusungit sa nurse.

(5) February 25

Several minutes ago, a 65 y.o. male was rushed to the ER due to loss of consciousness. The patient was with his wife strolling at SM Marikina when he suddenly fell on the floor unconscious.

The patient had 3 previous heart attacks and underwent open heart surgery few years ago.
The patient did not respond to CPR done, to all medications given. He was pronounced dead 40 minutes after.
Sad events like this makes me realize of my mortality.
Few minutes ago nag-uusap lang sila and nagtatawanan. In a matter of seconds, nawala na ang isa, permanently!
Maybe mas maraming nauunang lalaki kesa sa babae. There are more widows than widowers. I just hope when my time comes, hindi sudden, hindi biglaan... 

Pork Barrel 12: Why DAP is Wrong

These are my notes about the Disbursement Acceleration Program (DAP) last week, posted in my fb wall.

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DAP is wrong. Not for constitutional issues (I leave that to my lawyer friends) but for fiscal and economic issues. Those "idle"  funds were not there in the first place; they were borrowed money. If DAP is P100 B and government borrows P300 B a year, then if DBM/Malacanang left those "idle" funds unused and unspent, then govt borrowing should be only P200 B or less.

DBM Sec. Abad said at the Senate hearing last week that  "DAP is made on the principle, 'use it or lose it.'" DBM and Malacanang used it. Wrong. They should have "lost" it, by not spending it; in the process, remove the need for borrowing the same amount.

Sorry Sec. Butch but your arguments are faulty. If you "use" it for bleeding heart programs like giving free medicines to the sick and dying, drainage and bridges against flooding, then cutting borrowings, reducing the public debt stock and sparing the pockets of future taxpayers, and reducing current annual interest payment of about P330 B a year, is an even better bleeding heart goal.

Even if 100 percent of the programs funded by DAP are good, not a single centavo of it was stolen, it is still wrong. All the good and excellent programs that DAP funded could be funded by the regular budget, unless DBM will call the latter as “not good”. To cut borrowings is an even better, more bleeding heart goal, than continued fiscal irresponsibility. Of living beyond one's means. Of endless borrowings, with or without a crisis.

I argued in the past that the Freedom from Debt Coalition (FDC) is wrong in their campaigns. We can never have freedom from debt unless we have freedom from borrowings mentality and policy. Never.

Government should stop borrowings whenever possible. If projected revenue is P2 trillion, then spending should be P2 trillion and not P2.3 trillion because government will borrow P300 B. Better yet, spend only P1.8 trillion, use the P200 B surplus to pay back the debt. In times of crisis, borrow. In times of no crisis, pay.

The public debt can never be repaid by taxes alone. It is P5.6 trillion now. It is rising by around P350 B a year, with or without a crisis. The debt can be paid or at least drastically shrank by large-scale privatization + pay back via fiscal surplus. The P330 B a year interest payment alone is already huge and scandalous.

Fiscal irresponsibility works this way: All administrations say, "We are paying for debts and loans enjoyed by our predecessors. Might as well do it too. Spend-spend-spend now, let the future administrations and taxpayers worry where to get the money."

Pag sa households and micro level yan, someone who earns P50,000 a month and spends P55,000 a month, consistently, ang tawag dyan "gastador" or "maluho/magarbo”, “mayabang/hambugero", "iresponsable", "living beyond his means", etc. Pero pag gobyerno ang utang ng utang, "ok lang yan; it's for good projects naman eh" or "it's to fight poverty naman eh". People can demonize personal irresponsibility but not fiscal/government irresponsibility.

Also in the households, do not incur new spending if your resources are tied to old or recurring spending. Thus, do not buy a 2nd car yet if the 1st car can still service various household needs. This is not the case in government. They create new welfare program/s and subsidy/spending even if some old and existing welfare programs do not work as designed. Like the CCT, a huge multi-billion pesos subsidy program for the poor, without shrinking or terminating some existing subsidy programs that do not work. Basta lang gastos ng gastos, utang ng utang.

"Incurring debt is necessary to expand economic activity" is true if done on limited period. If done endlessly, wrong. In periods of no crisis, we should aspire not only for balanced budget, but budget surplus, pay some debt. In periods of crisis or emergencies (like the big earthquake of 1990, the Pinatubo eruption in 1991), borrow. Again, people can demonize personal irresponsibility but not fiscal/government irresponsibility.

The DAP controversy has also showed that political patronage has expanded from the traditional local and national politicians, to some NGOs and people's orgs (POs). Not the Napoles-type NGOs but old, grassroots, well-meaning NGOs. DAP has funded party or entirely, their programs for fisherfolks, poor patients, urban poor, indigenous people, women workers, the oldies, etc. Thus, DAP is good even if it may be unconstitutional or has violated existing laws and RAs. So long as it is our sector and NGOs that benefited, it is good.

Notice also that almost all governments around the world are fiscally irresponsible. Heavy and endless borrowing is in their DNA. Wastes and irresponsibility seems to be "built in" their system. Every year is a "crisis" or "emergency" year and thus, over-spending via borrowings is the default mode. The "idle" funds used for DAP presented a good opportunity for the President to think and act Liberal -- Liberate the taxpayers from endless burden of heavy and multiple taxation to finance government wastes and huge debt stock. But the President acted like any populist leaders where "each year is crisis year" with zero exception.

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See also:

Pork Barrel 8: Forum at DLSU Manila, October 02, 2013

Pork Barrel 9: Are PH Government Institutions Ready for Cleansing?, April 09, 2014

Pork Barrel 10: Bloated Budget, Wasteful Government, June 02, 2014

Pork Barrel 11: Impending Arrest of Sens. Enrile, Estrada and Revilla, June 19, 2014

Stratbase Forum on ASEAN Competitiveness

Last Wednesday, I attended a Citizen Watch round table discussion on "An Economic Reform Agenda for ASEAN Competitiveness" organized by the Stratbase Research Institute (SRI), a Makati-based think tank. It was held at the Tower Club, 33rd floor of Philam Life building. I think it was my first time to see that place. Nice.

Only 10 of us were invited, nine came.Photo below, from left: Dr. Epictetus "Lingling" Patalinghug of the UP College of Business Administration and Foundation for Economic Freedom (FEF) fellow; Calixto "Toti" Chikiamco, President of the FEF; Dr. Dindo Manhit, President of SRI, Dr. CP David of UP NIGS and PBEST; me, and Ms. Nelia Halcon, Executive Director of the Chamber of Mines of the Philippines (COMP).

The forum was moderated by Orly Oxales, Exec. Dir. of SRI while Dindo gave the opening message. Orly asked us to give a 3-5 minutes insights on how to achieve further PH and ASEAN competitiveness.

On the side, from left: Cong. Rey Umali of Oriental Mindoro, and Chairman of the House Committee on Energy, Sergio Luis Ortiz, President of the Philippine Exports Confederation (PhilExport), Salvador "Jun" Enriquez, former DBM Secretary and now CPRM Consultant, and George Chua, President of the Federation of Philippine Industries (FPI).

I prepared a paper, "Taxation, Regulation, Trade and Rule of Law: Reform Challenges for the Philippines and ASEAN Competitiveness", 12 pages including 9 tables and 2 charts. SRI printed and circulated it among the participants. Dindo liked it too, SRI will publish it in their website soon.

Below, CP David speaking. He narrated that aside from being an Earth scientist, he is also helping his wife in their business, running a pre-school, and the hard life of being an entrepreneur being pressured to submit many requirements to get various permits from various government agencies, and the burden of paying various taxes and fees.

George Chua discussed how the various bureaucracies, local and national, can be non-friendly to entrepreneurs. He cited one case, his importation. Because of the truck ban on certain hours by the Manila City government (Mayor is convicted ex-President Erap Estrada), there is huge congestion of cargos and ships at Manila international port. The ship that carried his imported goods arrived last June 5, but it was able to dock and unload the cargo only on June 12, and he was able to finally get the shipment last July 2. Productivity losses are huge.

The number of documents required by the BIR has also multiplied in recent years. So it is not only the actual taxes and fees to pay that have increased, but also the cost of compliance.

It was a great forum. Thanks again to Dindo and SRI for inviting me there. They will publish highlights of the discussion in their website soon.

All photos above I got from PBEST facebook page.

Mining 40: MICC and its Proposed 79 Percent Effective Tax Rate

Early this month, the Mining Industry Coordinating Council (MICC) has proposed  an effective mining tax rate of 79 percent. From BWorld, July 07, 2014,

“We are dismayed that the MICC has moved forward with a proposed increased tax policy without taking into consideration comments and observations not only from the mining industry that will be directly affected by said policy but by authoritative third parties,” CoMP said.

The MICC proposed a payment of 10% of gross revenue, or 55% of the Adjusted Net Mining Revenue, whichever may be higher.

Perhaps the MICC, in particular the Department of Trade and Industry (DTI), environmental militants and LGUs want the big, legal mining firms to become illegitimate "small scale" miners, them who pay zero tax to the BIR, only small fees to LGUs, do not undertake any CSR or reforestation after mining.

I heard that the MICC bills are DTI versions, Am curious, why did they stop at 79% effective tax rate, why not 89% or 99%? Kunin na lahat ng gobyerno?

More news stories below.

From Sun Star, July 13, 2014

Julian Payne, president of the Canadian Chamber of Commerce in the Philippines,... called for actions to make investments in mining competitive with that in other countries.... government should review the recent "no-go zones" in maps that have been published, which, he said "make 85% of the country off limits to minerals exploration." http://www.sunstar.com.ph/.../review-tax-plan-mining...

From Philippine Star, July 11, 2014

The MICC approved in May the imposition of either a 10 percent tax on gross revenues or a tax of 55 percent on adjusted net mining revenues (ANMR) plus a percentage of windfall profit, whichever would give higher revenues to the government.

ANMR pertains to the difference between gross sales and direct cost (direct mining cost and administrative expenses).

Contractors shall still be liable to pay real property tax, stock transaction tax, documentary stamp tax, withholding tax on passive income, as well as regulatory fees and charges.

Incentives to mining investments shall be limited to duty-free importation of specialized capital equipment and five-year amortization of pre-operating expenses....

The Canadian business chamber is also urging the replacement of the MICC by a new Consultative and Advisory Council on Mining (CACM) which would have a wider stakeholder representation in government, private sector and business groups.

From the PDInquirer, July 07, 2014

“There are other countries with more reasonable tax structures and are equally [if not better] endowed than the Philippines,” (COMP) said.

“The results of our financial modeling indicate that the government share under such proposal will be much higher than [those of] large mineral producing jurisdictions such as Canada, Queensland (Australia), Peru, South Africa, Chile and Papua New Guinea.”

Since July 2012, only one or first mining exploration permit has been issued? See 1st mining permit issued, Manila Standard, July 01, 2014, Mining is really "evil." The production and manufacturing of cell phones, watches, laptops, tv, cars, buses, etc., all products of mining, should be limited to restrict the march of this "evil" industry. 

A friend from EITI commented that "the social cost of mining is different from mining in Canada, Peru or Australia. Mining tax which constitutes the bigger chunk of social benefit from mining should outweigh social cost."

My friend saw Rio Tuba nickel mining that responsible mining -- zero mine tailings in rivers and sea; rehabilitation and reforestation of mined out areas, giving livelihood projects to nearby communities even if the people there are not employees, etc. -- is happening. Only large-scale corporate mining can do that. What reallly causes high "social cost of mining" is small-scale mining. Zero tax payment to BIR, zero reforestation and rehabilitation after deep and wide quarrying, zero education/ healthcare/ housing programs for employees, etc. So by pushing for heavy taxation of large-scale, legal mining, government and the militant NGOs are pushing some of these companies to sub-contract the work to "small-scale" while reporting small revenues that are subject to 79 percent tax rate, exclusive of the cost of mandatory CSR projects to communities.

I think if government will further raise mining taxes, only the corrupt players will survive. The tax assessors and collectors will extort money while the players will pay and bribe them, in exchange for understatement of revenues and hence, the taxable income. The honest big players will slowly fade away.

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See also: 

Mining 36: Tax that can Wipe Out All PH Public Debt, October 22, 2013 

Mining 37: Adverse Selection of Anti-Corporate Mining View, November 21, 2013 

Mining 38: Canada's $7.8 B a year tax revenues vs PH's $0.3 B, December 17, 2013

Mining 39: Taxes, SDMP and Small Scale Mines, January 11, 2014

Inequality 19: Notes and Quotes on Globalization and Inequality

Reposting here some notes and quotes on the subject which I posted in the facebook group, Government and Taxes, Liberty and Responsibility last month.

A good chart from Cato last May 3, 2014. Globalization eradicates poverty, posted by Daniel Castro.

Actually, the term "globalization eradicates poverty" may be wrong. Poverty may never be eradicated as there are many factors that contribute to it, including personal irresponsibility and laziness. A better term would be "globalization reduces poverty" and inequality among countries. Free trade can lead to factor price equalization (FPE) and commodity price equalization (CPE) across countries over the long term.

Many activists complaining of "widening inequality" will not be happy with this data from The Economist daily chart -- the number of "extremely poor" in developing countries is declining while the number of "developing middle class" and "developed middle class" is rising. 

In a paper last May 8, 2014, Where is the Inequality Problem?, Harvard University economist Kenneth Rogoff wrote,

Reading Thomas Piketty’s influential new book Capital in the Twenty-First Century, one might conclude that the world has not been this unequal since the days of robber barons and kings. That is odd, because one might conclude from reading another excellent new book, Angus Deaton’s The Great Escape (which I recently reviewed), that the world is more equal than ever.

... over the last few decades, several billion people in the developing world, particularly in Asia, have escaped truly desperate levels of poverty. The same machine that has increased inequality in rich countries has leveled the playing field globally for billions.... when it comes to reducing global inequality, the capitalist system has had an impressive three decades.

From Freedom Barometer June 12, 2014, written by Dr. Sethaput Narueput.

One can even argue that globalization has reduced inequality. Most discussions of inequality focus on national inequality, which has increased. But global inequality, which looks at differences in income across people regardless of what country they are in, has dropped because many more Chinese and Indians now have higher incomes, in significant part due to globalization and freer markets.

From EFN Asia, Globalization and Inequality: EFN Asia’s session in Jeju Forum for Peace and Prosperity 2014

... globalization is an inevitable phenomenon and a good one. It is the one that has helped mitigate the income inequality situation. Income inequality actually comes from not enough globalization and protectionism and monopoly. Thomas Piketty’s idea on global tax of wealth is plainly wrong.

 From BBC, The next billionaires in numbers June 13, 2014,

The extremely wealthy are growing in numbers and entire industries are being created to cater to their desires but where are the individuals who are amassing vast fortunes based and what do we know about them?

Multi-billionaire Edward Zhu, who moved to China from the United States two decades ago, says talented people should start from nothing and that is what he wants for his children.

Meanwhile, here are some photos during my talk on "Globalization, Mobility and Inequality" at La Salle Green Hills (LSGH) 4th year high school/graduating students, Honors Class, last February 17, 2014.

The officers of the Honors Class. Mike Roa, the class President, right most. He's the son of a batchmate from UPSE 1984, Malou Roa.

See also::

Inequality 15: SM, Henry Sy and Class Envy, October 20, 2013  

Inequality 16: Inclusive Growth and Central Planning, October 21, 2013 

Inequality 17: The Koch Brothers and Their Critics, April 04, 2014

Inequality 18: Piketty, Fabella, Equity-Efficiency Nexus and EPIRA, June 14, 2014

Energy Econ 23: Death of Australia's Carbon Tax

Today, Australia officially killed the onerous and climate alarmism law, carbon tax. I am posting below portions of selected news reports on the subject.

From The Australian today, 

The Prime Minister, while claiming victory after a five-year campaign against carbon pricing, also launched a new campaign against the Labor Party’s promise to take a replacement emissions trading scheme to the next election.

And from the WSJ today,  

"He said the carbon price was acting as a A$9 billion a year handbrake on the economy, which was adjusting to the end of a record mining investment boom that helped shield Australia through much of the recent global economic downturn....

The carbon tax has affected industries ranging from mining and energy to aviation, and was widely opposed by manufacturers and a majority of business representative groups including the country's main chamber of commerce....

Airline operators also said they had been hurt badly by the tax, at a time when intensifying competition in Australia's domestic travel market was already driving down ticket prices. Virgin Australia Holdings Ltd. VAH.AU 0.00% said it lost A$27 million in the six months through December 2013 due to the carbon tax, saying it couldn't pass costs on to passengers because of stiff market competition. It reported a first-half loss of A$83.7 million."

Earlier, WUWT, June 10, 2014, noted the alliance between the two leaders of Australia and Canada. 

“It’s not that we don’t seek to deal with climate change,” said Harper. “But we seek to deal with it in a way that will protect and enhance our ability to create jobs and growth. Not destroy jobs and growth in our countries.”

From Ottawa Citizen,

Abbott, whose Liberal party came to power last fall on a conservative platform, publicly praised Harper for being an “exemplar” of “centre-right leadership” in the world.

Abbott’s government has come under criticism for its plan to cancel Australia’s carbon tax, while Harper has been criticized for failing to introduce regulations to reduce greenhouse gas emissions in Canada’s oil and gas sector.

From International Business Times (IBT) Australia, June 10, 2014, 

Tony Abbott to 'Forge Alliance' to Counter Obama's Efforts to Push Climate Change on Top

Abbott, who is visiting Canada for talks with the country's prime minister and his close friend Stephen Harper, said efforts are underway to form a new "center-right" alliance under the leadership of Canada, UK, Australia, India and New Zealand....

In a report by the Sydney Morning Herald, it said the alliance may be a "calculated attempt" to push back on what both Mr Abbott and Mr Harper sees as a "left-liberal agenda" to raise taxes and "unwise" plans to address the issue of global warming.

  

From The Telegraph, June 10, 2014,

""Like-minded” countries such as Britain, Canada and India should form a conservative alliance with Australia to limit action on climate change and to prevent the introduction of carbon pricing, the country's prime minister Tony Abbott has said.

Seeking to counter Barack Obama’s efforts for international action to reduce carbon emissions, Mr Abbott has reportedly sought to create a “combined front” with fellow Commonwealth nations that have conservative governments."

September last year, Tony Abbott also abolished the Ministry of Climate Change, helped shrink the size of Australian government.

From pointcarbon.com,

AUSTRALIA AXES MINISTERIAL ROLE FOR CLIMATE CHANGE

16 Sep 2013 09:40 Last updated: 16 Sep 2013 09:51

BEIJING, Sept 16 (Reuters Point Carbon) - The new Australian Cabinet will be the first in six years to not have a ministerial role for climate change issues, merging instead global warming with the wider environment portfolio.

Announcing his Cabinet on Monday, incoming Prime Minister Tony Abbott appointed Greg Hunt, the Liberal-National Coalition’s spokesman on climate change issues since 2009, as the new Minister for the Environment.

So, RIP, carbon tax, at least in Australia.

I hope that other developed countries will realize the folly of making things, from electricity to manufacturing to mining to flying and tourism, become more expensive than what they should be. People want affordable products and services so they can live a more prosperous, more comfortable life. It is the reward for their hard labor and work efficiency.
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See also:
Energy Econ 16: Electricity and Development, March 20, 2014

Energy Econ 19: Wind Power, Feed in Tariff and Electricity Subsidy, April 23, 2014

Energy Econ 20: On Slashing the Max Power Generation Charge, May 05, 2014

Energy Econ 21: Joint Statement on EPIRA Implementation, May 27, 2014

Energy Econ 22: FEF on FIT for Solar Power Plants, June 13, 2014