Budget and Taxes

*  BusinessWorld , April 19, 2023. ------------- Last week, the country’s economic team went to Washington DC to hold the Philippine Economic Briefing (PEB) and joined meetings with multilateral agencies and corporate investors and lenders. The economic team has one important goal — to attract more investments and create more businesses and jobs here as more liberal economic policies are implemented. Also last week, the IMF released the World Economic Outlook (WEO) 2023. I was curious about the economic expansion of the Philippines and other countries over the past four decades, so I checked the database and got the excel file. I show here different countries’ gross domestic product (GDP) size, both nominal (current GDP values in national currency multiplied by average exchange rate with the US$) and by purchasing power parity (PPP) values, which attempts to remove price level differences of goods and services between countries. In PPP values of GDP, China overtook the US in 2016 w...

*  BusinessWorld  April 12, 2023. ----------- The Philippine Statistics Authority (PSA) released today an update on causes of deaths in the Philippines for the period January-November 2022. I expanded the data backwards until 2017 so six years and saw some interesting trends. One, COVID deaths, both with identified and unidentified virus, have shrunk greatly, from 13.8% of total deaths in 2021 — when it was the second biggest cause of death next to ischemic heart diseases — to only 2.8% in 2022. Two, cancer deaths declined significantly, from 11.1% of the total in 2019 to only 7.8% in 2021, then up to 10.2% in 2022. Three, pneumonia deaths also declined significantly, from 10.1% of the total in 2019 to only 4.2% in 2021 — wow! It was up to 4.8% in 2022. Four, lower respiratory plus tuberculosis (TB) deaths combined declined from 7.9% in 2019 to only 4.9% in 2021, then up to 6.1% in 2022 (see the Table). My suspicion is that the number of COVID deaths were exaggerated — by labe...

*  BusinessWorld  April 10, 2023.  ------------ After four months of Philippine inflation at 8% and above, dipped to 7.6% in March, a welcome development. But this is more of European level than East Asian as East Asians had inflation of only 1% to 6.3% in February. On April 12, the Philippines’ economic and infrastructure teams will hold another Philippines Economic Briefing, this time in Washington DC. The economic team is composed of Finance Secretary Benjamin E. Diokno, Budget Secretary Amenah F. Pangandaman, National Economic and Development Authority Secretary Arsenio M. Balisacan and central bank Governor Felipe M. Medalla. The US-Canada-Europe economies are generally in bad shape, suffering from high inflation and low, decelerating GDP growth. I computed the average first quarter or January-March inflation rates of countries in 2020-2022, and the US and UK lead in this very bad trend. Many businesses there would experience losses or flat revenues and will consider...

*  BusinessWorld  March 29, 2023. ------------- Yesterday, Department of Finance (DoF) Secretary Benjamin E. Diokno held a press briefing with the Malacañang press corps and shared his presentations in a meeting with President Ferdinand R. Marcos, Jr. Two big announcements, two big issues were discussed in one briefing. One is the proposed merger of the Land Bank of the Philippines (LBP) and the Development Bank of the Philippines (DBP) with LBP as the surviving entity, the other was the military and uniformed personnel (MUP) pension reforms. Both the LBP and DBP are under the Finance department while getting money to fund the MUP pension is a DoF function, or headache. At the onset, I support these two important reforms and I hope the public will also support them. There are at least four reasons that the LBP-DBP merger will be favorable to the public. One, the merger will create a bigger, stronger, more resilient government bank while contributing to the reduction in the siz...

*  BusinessWorld  March 27, 2023. ------------ Among the good news in public finance so far this year is that the government has generated a budget surplus of P45.75 billion in January vs. a budget deficit of P23.38 in January last year. The key was the big jump in revenues, from only P278.08 billion in January 2022 to P348.17 billion in January 2023, an increase of P70 billion even without any tax hike, just through the opening up of the economy from the horrible authoritarian lockdown of the previous administration. The bad news is that financing or new borrowings remain high — from P437.2 billion in January 2022 to P366 billion in January 2023. There is a need to control National Government spending while revenues must continue rising via continued economic opening and better tax administration. Recently, President Ferdinand Marcos, Jr. announced a postponement in full devolution of certain functions to local government units (LGUs), from 2024 to a later period as a result ...

*  BusinessWorld , March 13, 2023. ------------- In East Asia, only the Philippines and Japan sustained high inflation until January-February this year. Indonesia, Singapore, and Vietnam have generally trended flat while Thailand, Malaysia, China, South Korea, and Taiwan have declining trends. This suggests that internal or domestic factors affect our commodities market more than external factors. The main contributors of high inflation in the Philippines, from the fourth quarter 2022 until February 2023 are transport, electricity and fuels, food, and alcohol-tobacco. (See Table 1.) So, despite the series of interest rate hikes by the Bangko Sentral ng Pilipinas from only 2% in May 2022 to 5.5% last December, this demand restriction scheme did not work as expected because the commodities that experience high inflation until today are basic necessities like food and electricity. The non-monetary measures needed both in short- and long-term would include: 1.) more food production pre...

*  BusinessWorld  March 6, 2023. --------------- The Philippines’ inflation rate of 8.1% last December, then 8.7% last January, was high but it is not unique to us — the country just joined Singapore, Thailand, and Taiwan in hitting a 14-year high in its inflation rate. Japan, the US, and the UK have hit 41-year highs while Germany has had its highest inflation rate in 70 years. Contrary to the dishonest narrative that global inflation started rising only when Russia invaded Ukraine on Feb. 24, 2022, the start of the increase in inflation coincided with US President Joe Biden’s succeeding Donald Trump. US inflation was only 1.4% in January 2021, which was Trump’s last month in office, jumping to 7.5% in January 2022 or 12 months under the Biden administration and one month before the Russia-Ukraine war. (See Table 1). Last week, the Cabinet economic team gave a briefing at the House Committee on Appropriation about government policies to control inflation. Finance Secretary Be...

*  BusinessWorld  February 27, 2023.  ----------- Feb. 24 last week marked the first anniversary of Russia’s invasion of Ukraine. The Ukraine crisis has morphed from a border war between the two countries to a potential nuclear conflict in Europe. Here are five major crisis narratives which have had a big impact on economic growth and individual freedom.... 2. The economic/poverty crisis.  Government-imposed lockdowns then overspending and borrowing for aid/ayuda and subsidies will lead to more taxes in the future to pay for the huge borrowing. Below I make two computations: a.) required growth in 2021 to reach the level of 2019’s gross domestic product (GDP), and, b.) required growth in 2023 to expand by 15% over 2019’s GDP level. The results show that for many East Asian economies, their GDP growth in 2021 has enabled them to recover a similar GDP size of 2019. For the Philippines, a.) GDP growth in 2021 should have been 10% and not just 5.7% to be at the same GDP ...

*  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...