THE LONG VIEW
Paying the piper
MANILA, Philippines — When National Treasurer Omar Cruz resigned, he told the press, “Until you come up with a new set of tax measures you will not generate revenue annuity.” The government’s budget deficit goal for this year is P63 billion, a “reasonable target,” Cruz said. Ricky Carandang, in his must-read blog (http://www.rickycarandang.com) points out that while the government’s deficit target for the first quarter of this year was P46 billion, the actual deficit was P52 billion.
To cover the deficit, Cruz said the government could continue selling assets to compensate for its inability to collect as much as it spends. But Carandang says that if government is to meet its budget deficit goal, it can incur a deficit of only P11 billion over the remaining nine months of this year, or 1.2 billion a month. But this is a year that government itself says will be marked by increased spending: and not just for the hidden, and massive, costs of its national and local campaign.
When President Gloria Macapagal-Arroyo signed the national budget last March, she proclaimed it was “social payback time.” The budget, she crowed, would have more money allocated for the things she’d scrimped on in the past — such as education, health, and so on. Things that all along were essential to the public but were unessential in terms of the fiscal bottom line, the shrinking of which she needed to do, to keep the foreign rating agencies happy.
So add it all up. Social payback, as included in the budget, will raise, among others, government salaries; infrastructure payback, as listed in her 21 priority infrastructure projects; military payback, by way of an increase in military spending to keep the generals happy.
It will also be political payback time. Our President, famously low in charisma, can’t get people to go that extra mile out of love or admiration for her. She has to pay — and pay, and pay. Let’s assume all the usual covert sources for funds (“intelligence” and other funds hidden in the budget) will be mined for election spending; There’s still the coming costs of the eventual musical chairs in the House of Representatives, when the Palace deems the time ripe to install Luis Villafuerte as Speaker; the bureaucratic costs of accommodating generals in government after they retire from the service; the coming costs of a new round of Charter change, including another manufactured people’s initiative.
Now in his entry on the deficit, Ricky Carandang says government has to deal with a couple of harsh realities. First, the stronger peso means the Bureau of Customs collects less: Whereas every million dollars in customs duties collected once amounted to P56 million, now it’s worth P47.5 million or so. Add to this what Carandang calls the “silent protest” by collectors of the Bureau of Internal Revenue and Bureau of Customs: They resent reforms, but instead of risking life and limb by protesting, they’re simply not collecting.
This not only means less income for the government. This is a kind of anarchy in these two government agencies: Collectors have become a law unto themselves, obeying no one, while bearing down hard on everyone they deal with. You have only to ask people who deal with the two agencies to know the depths of public resentment against them — a resentment people are afraid to publicize.
When Cruz’s resignation was announced, FinanceAsia.com noted that his shoes will be hard to fill — and that a wait-and-see attitude concerning the country is appropriate for now. Standard and Poor’s is expected to say something nice — but is also waiting until after the elections. It won’t be business as usual.
Chronically in debt, people and government are perpetually pawning something — or selling something off — to meet the next round of bills. Eventually though, Cruz pointed out, the family silver will run out and government will have nothing left to pawn or sell. Or put another way, it may have enough family silver to sell between now and 2010. Government could conceivably try selling Transco again; it could sell its stake in Manila Electric Co. and San Miguel Corp. And tide the deficit over until 2010. But that’s presuming every time something’s for sale, someone will snap it up. But look at the botched Transco bidding. Never underestimate government’s capacity for incompetence. Sooner or later, the talk in official circles — egged on by the foreign credit ratings agencies — will involve raising taxes.
For all these things — looming big-ticket expenses, big political gambits, selling government assets and raising taxes — you need a government that the public believes is in a position to call for sacrifice because it is trusted not to monkey around with the numbers that are the basis for increased spending.
Only a government with an iron-clad electoral mandate can do that. Only a government whose facts and figures are trustworthy — whether in terms of the number of votes, the number of students in comparison to their classrooms, the number that has disappeared under mysterious circumstances — can ask the public to trust it to sell government assets, raise taxes, and spend the proceeds wisely and fairly.
And in the end, this is what the debate will boil down to, when all the issues start coming together. A messy election — involving an Armed Forces led by politician-generals, administered by a Commission on Elections that makes its Ferdinand Marcos-era predecessor look saintly in comparison, with enough high-profile local and national races tainted by Palace-led efforts to subvert the public will — is not an effective way to lay the foundations for covering government’s future income shortfalls. Taxation, indirect or not, without representation, is tyranny. And the lesson of this election is that representation is something government can’t afford to leave up to the public to determine.
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The Long View