Budget and Taxes

*  BusinessWorld  May 01, 2023. ------------ The pushback against military and uniformed personnel pension reform has come strongly since Finance Secretary Benjamin E. Diokno announced the reforms on March 28. President Ferdinand R. Marcos, Jr. approved the reforms with the concurrence of Defense Secretary Carlito G. Galvez, Jr. and Interior and Local Government Secretary Benhur Abalos. Under Mr. Diokno’s proposal, the reforms will apply to all active personnel and new entrants. It will remove the automatic indexation of pensions to the salary of active personnel of the same rank. Uniformed personnel will start getting their pensions when they turn 57. Mandatory contributions will be required for active personnel and new entrants, similar to GSIS pensioners. These reforms are necessary to address certain economic distortions. For instance, active personnel contribute zero to their future pensions, the cost of which had reached P160 billion a year and is projected to reach P200...

*  BusinessWorld  April 26, 2023. ---------------- Last week, the Development Budget Coordination Committee (DBCC) held a press conference on the revised macroeconomic and fiscal targets from 2023-2028. The DBCC — or the economic team — is composed of the Secretaries of the Departments of Finance and Budget and Management (DoF and DBM), the National Economic and Development Authority (NEDA), and the Governor of the Bangko Sentral ng Pilipinas. It is good that the economic team is keeping the original growth targets at 6-7% for 2023, and 6.5-8% for 2024-2028. As argued in this column last Monday, the Philippines’ quarterly GDP growth momentum in 2022 plus employment data as of February 2023 show that the domestic economy is dynamic, and local businesses can sustain a virtuous cycle of production-consumption at higher and rising levels. I also think that the macroeconomic assumptions to make the growth projections are realistic. For instance, the Dubai crude price of $70-$90/bar...

*  BusinessWorld  April 24, 2023. ------------ Last week, on April 20, the Inter-Agency Committee on Inflation and Market Outlook (IAC-IMO) led by the Department of Finance and the National Economic and Development Authority (NEDA) held a principals level (Secretaries and Undersecretaries only) meeting to tackle persistent high prices in the Philippines. Based on first quarter (Q1) or January-March 2023 average inflation rate, the Philippines has the highest level of inflation in East Asia at 8.3% while Singapore had the highest jump, from only 0.7% in Q1 2021 to 6.5% in January-February 2023. There is no March data yet as of this writing. In Europe, the UK, Italy and Germany are still worse off (see Table 1). The main sources of the Philippines’ high inflation in Q1 were alcoholic beverages and tobacco due to the continued rise in sin taxes; food and non-alcoholic beverages due to some supply disruption plus the sugar tax; transport due to still high prices of oil products; a...

*  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...