Budget and Taxes

*  BusinessWorld  February 20, 2023. --------- “The prodigal perverts by not confining his expense within his income, he encroaches upon his capital… By diminishing the funds destined for the employment of productive labor, he necessarily diminishes the quantity of that labor which adds a value to the annual produce of the land and labor of the whole country.” — Adam Smith, The Wealth of Nations (1776), Book 2 Chapter 3, Of the accumulation of capital, or of productive and unproductive labor Among the displeasure by the public of the huge and elaborate government bureaucracies, both national and local, is that they produce very little except more regulations, restrictions and prohibitions, require more taxes, fines and penalties. So the public desire less bureaucratic restrictions and taxation, more free enterprise and competition. Reforming the government bureaucracy has been tried in many administrations before but did not prosper. Here are 10 things about the bureaucracy an...

* BusinessWorld Feb. 13, 2023. ------------ Last week, several important pieces of news and events came out. I am summarizing them here. 1. The Philippines inflation rate was 8.7%.  The Philippine Statistics Authority (PSA) released the January inflation data last week, and the number is indeed bad. But last year, Thailand and Singapore also experienced inflation at 14-year highs, South Korea hit a 24-years high, Japan has a 41-year high. The main contributors of the 8.7% inflation rate (the highest since November 2008) are from housing, water, electricity, gas, other fuels, transport, and food. These are basic necessities so even if the Bangko Sentral ng Pilipinas (BSP) interest rates further rise from the current 5.5% (only 2% last April) to 10%, people will still spend for them. The appropriate policies are to encourage more supply of those goods — cement, steel, electricity, water, etc. — both through domestic production and trade liberalization. 2. Low unemployment rate despi...

*  BusinessWorld  January 30, 2023. -------------- Continuing the “Top 10” economic issues being discussed in this column, this 8th installment will tackle one huge elephant in the room, the ever-rising taxpayers’ burden which is the military and uniformed personnel (MUP) pension system. Here are 10 issues that Philippines taxpayers and public finance researchers should consider. 1. Government civilian personnel contribute for their future pension, MUP do not. Government doctors, nurses, teachers, engineers, agriculturists, etc. Accept the additional deductions from their monthly pay that go to the Government Service Insurance System (GSIS), the MUP do not. Taxpayers pay for active service MUP salaries and other compensation, then when they retire, taxpayers again have to pay for their pension — and the scheme is egregious. 2. The amount is huge, P65 billion/year a decade ago, P130 billion this year. In an article written a decade ago by Benjamin Diokno (now Finance Secretary)...

*  BusinessWorld , January 26, 2023. ----------------- The Philippine Statistics Authority (PSA) released today two important reports, the 4th quarter — and hence, full year 2022 — GDP, and December — and hence, full year 2022 — trade data. These are the trends that we see. 1. GDP growth in 2022 is 7.6% led by investments and household consumption.  On the demand side, household consumption has the biggest share, 73%, of GDP or gross domestic product (a monetary measure of the market value of all the final goods and services produced and sold in a specific time period), and it grew 8.3% last year. Investment has a 24% share of GDP and it grew 17%. 2. Government’s share in GDP is rising.  In 2016-2017, the share of government consumption was only 11% of GDP — it went up to 15% in 2022. Since government spending is financed by taxes and borrowings, this means that current and future taxes and debt payment will increase, not flatline or decline. 3. The Services sector, led b...

*  BusinessWorld  Jan. 23, 2023. ------------ Economics is the study of the proper allocation of limited resources given unlimited wants. Development economics is a branch of economics that focuses on developing countries’ social, economic, and fiscal allocation of resources. The University of the Philippines School of Economics (UPSE) has three academic programs — undergraduate, MA, and PhD — and the Program in Development Economics (PDE). The last was created in the mid-1960s and designed for mid-level technical staff of various government agencies. It is applied economics with theoretical background like marginal cost curves, production possibility frontier, etc. After finishing my AB Economics in UPSE in the 1980s, I went back to the school in the ’90s to study PDE when I was still working at the House of Representatives. Here are among the important themes in the course that I can remember and our teachers then. 1. In macroeconomics: GDP and consumption formula.  GDP...

* BusinessWorld , January 5, 2023. ----------- The Philippine Statistics Authority (PSA) reported that the December 2022 inflation rate was 8.1%. It is the peak rate for 2022 and also the highest since 2008. As of today, only a few countries in the top 50 largest economies in the world have reported their December 2022 inflation data. In Table 1, I list five countries each in Europe and Asia. Europe has been severely affected mainly because of high energy prices. Germany, the largest economy in Europe and fourth largest in the world, experienced its highest inflation in 70 years. Switzerland, which has the lowest inflation in Europe, still experienced 29-years high price increases. It seems that the series of interest rate hikes by central banks and the monetary authorities of many governments have succeeded in causing demand destruction, where consumers were forced to cut down their spending on many items, which pulled down overall inflation rates in the latter months of 2022. In ...

BusinessWorld , Jan. 2, 2023. -------------- Here is this column’s assessment of the important trade and investment stories of the past year, five global and five national. .... 5. Global illicit trade was estimated at more than $2 trillion a year The number is an UNCTAD estimate. There is a huge diversion in commerce from legal and registered products to illegal ones, leading to lower tax revenues for governments that led them to raise taxes elsewhere. In September, it held the second UNCTAD Illicit Trade Forum in Geneva, in partnership with the Transnational Alliance to Combat Illicit Trade (TRACIT). The goal was to highlight initiatives and cooperation to fight this criminal activity.... 7. High incidence of illicit trade especially in tobacco See a recent report in  BusinessWorld , “Gov’t losing P250B in revenues due to illicit trade” (Dec. 14) quoting Jesus L. Arranza, the chairman of both Fight IT (Illicit Trade) and the Federation of Philippine Industries. He estimates that ...

*  BusinessWorld , Dec. 26, 2022. ----------- Here is this column’s assessment of important macroeconomic events this year especially in the fiscal and monetary sectors, five global and five national. Covered are the major economies in the world arranged by region, and biggest GDP size per region. 1. G7, China, and Russian growth declined significantly. The Group of Seven (G7) industrialized countries — the United States of America (US), Canada, Japan, Germany, the United Kingdom (UK), France, Italy — renewed their growth slowdown this year after a modest recovery last year. And for the first time since 1991 or three decades ago, China this year will grow below 6%, aside from 2020’s global contraction. Russia will have another contraction as a result of the various sanctions against it after its invasion of Ukraine. But most ASEAN (Association of South East Asian Nations) countries will have faster growth this year than last year. 2. G7 countries have hit 37 to 70 years inflation r...

* BusinessWorld , December 12, 2022. -------------- This column continues to monitor many economic issues and developments. There are 10 topics tackled here. 1. Public debt has reached P14 trillion Last week, the Bureau of the Treasury released fiscal data for October 2022. The budget deficit has reached P1.1 trillion, interest payment alone is P43.3 billion/month average and likely to reach P520 billion by end of this year. Total outstanding public debt has reached P14 trillion, actual plus guaranteed. The public debt has been rising by P2 trillion/year from 2020 to 2022 or three years straight, not a good fiscal condition. The debt should significantly decline starting next year. Control should be on the spending side by the national government. 2. Inflation has reached 8%, a 14-year high Also last week, the Philippine Statistics Authority (PSA) reported that November inflation was 8%, a 14-year high. This is indeed high, but taking the average for 2022, we have a 5.6% inflation rate...

* BusinessWorld , December 5, 2022. ------------ At the  BusinessWorld  Economic Forum on Nov. 29 at the Grand Hyatt Manila in Bonifacio Global City in Taguig, Finance Secretary Benjamin Diokno outlined in his keynote speech an optimistic growth trajectory for the Philippines, the overall fiscal resources and debt reduction needed, and investment liberalization policies that have been institutionalized. He also briefly mentioned the establishment of a state-owned sovereign wealth fund (SWF). THE MAHARLIKA INVESTMENT FUND (MIF) The MIF, the Philippines’ SWF as proposed by the House leadership under House Bill 6398, ‘has attracted mostly negative reactions from researchers and corporate players in the country. See for instance these reports and columns in  BusinessWorld : “Medalla voices caution over plans to create $4.9B sovereign fund” (Dec. 2), “PHL not ready for sovereign wealth fund — analysts” (Dec. 5), “The Maharlika Wealth Fund,” Yellow Pad by Filomeno S. Sta. Ana I...