Promises Promises (you knew you'd never keep)

Yesterday, it was reported that the Finance Department was preparing a new raft of taxes for next year’s budget. Having promised “no new taxes” at a speech to prominent businesspersons and having by and large kept to that declaration during his first year in office, the president apparently has given the go ahead to pursue new ways of raising revenue.

With the conflicting policy goals of increasing the years of basic education to 12 from 10, creating universal health coverage, expanding social safety nets via the conditional cash transfers while at the same time reducing the deficit and bringing the budget within 1-2% of GDP, the Cabinet has finally come to the conclusion that intensifying tax collection efforts simply won’t be enough.

Here is the full transcript of the president’s speech at the Makati Business Club back in January 2010 during the heat of the campaign. It was in this speech that the then candidate Aquino declared, “We will refrain from imposing new taxes or increasing tax rates.” During the Q&A that followed, he clarified that this meant no new taxes were intended and were to be used as a last resort.

Even the MBC executive director at the time Alberto Lim hinted (if you read between the lines) that he did not believe this was even appropriate. Evidently that pledge has been interpreted by Cabinet to mean “no new taxes at least during the first eighteen months of his administration.” It appears that the Run After Tax Evader (RATE) and Run After the Smuggler (RATS) schemes cannot be expected to raise revenues by the required margins as the experts had predicted.

The sad thing is that the short window of opportunity for undertaking tough fiscal reforms may have passed by the time they introduce such measures in Congress. Next year, 2012 is an election year. With the proposals on the table being:

  • an increase in the excise tax on tobacco and alcohol,
  • an increase of the VAT rate to 15%,
  • the scrapping of redundant fiscal incentives to smugglers businesses operating in special economic zones,
  • a national real property tax assessment coursed through local government units and deducted from their Internal Revenue Allotments,

it does not seem likely that our representatives will have the appetite to enact them. Sen TG Guingona III who hosted the Open Budget Partnership forum on Tuesday seemed to admit that the measures though “sensible” were politically unpalatable. Never mind that in exchange for the “pain” of these measures, the public will “gain” through reduced corporate and income taxes. The dream of every tax economist is for a flatter simpler system to administer. This is seldom ever achieved in the lobby-ridden halls of Congress.

Window Closed

The time according to former Budget Sec Ben Diokno for instituting such tough measures would have been early in the term of a president (first six months), when his public support is at its highest and a few years from the next election to allow the sting of reforms to wear off and the public benefits to set in. Unfortunately this president chose to delay doing the hard yards until now.

This puts his spending programs at risk. Either way, something will have to give. The government will be forced to either scale back its social services spending or say good-bye to any possible credit upgrade. In all likelihood, it will end up somewhere in-between with half baked spending programs and a mediocre budget position. Society will not gain from an optimal level of social service, and the business sector will not benefit from lower costs of borrowing.

If only candidates were made to cost their campaign promises (as I had advocated during the campaign season), the President would have realized early in the day that a “no new taxes” pledge would be the undoing of his social compact. I recall during the campaign season being challenged on this issue in Manolo L Quezon’s blog site during the unveiling of the Liberal Party’s (LP’s) platform.

My claim was that party platforms usually came with budget impact statements. If you make a campaign pledge to introduce two more years of high school for instance, you need to estimate how much additional spending will be required and how you will finance it. I was told that being in the opposition prevented the LP from performing such an exercise. I challenged this view based on the fact that the LP had a former education secretary (Butch Abad) as an advisor, a recent NEDA secretary general (Ralph Recto) among his senatorial line-up, and the presidential candidate himself who claimed to be knowledgeable of the budget..

Just like Aquino I before him who promised to “honor all debts” whether they be tainted with corruption or not, the pledge of “no new taxes” by Aquino II might have bound the hands of this administration and caused unnecessary damage to its social reform agenda.

My concern was that such platforms turn into sweet nothings after the election, and that issuing such promises without costings was irresponsible. In the previous UK elections for instance, the Liberal Democrats under the now Deputy PM Nick Clegg which for a time was tipped to upset the major parties, prepared a fully costed first year’s budget in their manifesto hoping to project an image of a party ready to govern. Of course after having formed a coalition agreement with the Conservatives, they had to backtrack on some of these pledges, but the point is, in these mature democracies, if you want to be taken seriously during the campaign, you need to engage in serious pencil pushing and numbers crunching before formalizing your manifesto.

(Note: The reason why this is possible under the parliamentary system is that during the formal campaign when the government goes into caretaker mode, the bureaucracy is made accessible to the Opposition. So any costings for any planned effort can be run through the treasury department. But even so, under the presidential system in the US, a number of think tanks and advisors proliferate that would allow for such calculations to be made. The same applies in the Philippines.)

The other problem for me was that certain party nominees for the Senate had not signed on to the LP platform. If you for instance adopt responsible parenthood as one of the key planks in your program of government, then all those who run under your banner must sign on to it. How can you endorse someone opposed to it? It should be a condition of joining the team that each nominee must commit to support the proposed policies embodied in the document. The fact that they weren’t required to do so (TG Guingona and Ralph Recto oppose the RH bill or have serious reservations), shows how “airy fairy” these pledges become.

Aquino I and II: uncanny similarities

Just like Aquino I before him who promised to “honor all debts” whether they be tainted with corruption or not, the pledge of “no new taxes” by Aquino II might have bound the hands of this administration and caused unnecessary damage to its social reform agenda. A similar parallel can be drawn in the case of the CARP and the RH bill. Under Aquino I the legislation on agrarian reform was stalled until the more conservative forces in  congress could water it down. The RH bill seems to be suffering a similar fate due to the weak support being received from the president in the face of stiff opposition from the conservative Catholic bishops conference.

So as we approach the final quarter of P-Noy’s first year in the Palace, we probably should load up the karaoke and sing along with Naked Eyes. This is probably the only solace we will find in the wilderness of broken promises.

[youtube]http://www.youtube.com/watch?v=2D7GVyTtH1M[/youtube]

C’mon sing along!

Never had a doubt
In the beginning
Never a doubt
Trusted too true
In the beginning
I loved you right through
Arm in arm we laughed like kids
At all the silly things we did

You made me promises promises
Knowing I’d believe
Promises promises
You knew you’d never keep

Second time around
I’m still believing words that you said
You said you’d always be here
“In love forever”
Still repeats in my head
You can’t finish what you start
If this is love it breaks my heart

You made me promises promises
You knew you’d never keep
Promises promises
Why do I believe

Arm in arm we laughed like kids
At all the silly things we did
You can’t finish what you start
If this is love it breaks my heart

You made me promises promises
You knew you’d never keep
Promises promises
Why do I believe
All of your promises
You knew you’d never keep
Promises promises
Why do I believe

Promises
Promises
Promises
Promises
Promises

 

Doy Santos aka The Cusp

Doy Santos is an international development consultant who shuttles between Australia and the Philippines. He maintains a blog called The Cusp: A discussion of new thinking, new schools of thought and fresh ideas on public policy (www.thecusponline.org) and tweets as @thecusponline. He holds a Master in Development Economics from the University of the Philippines and an MS in Public Policy from Carnegie Mellon University.

  • Wonderful web site. A lot of useful information here. I am sending it to some friends ans also sharing in delicious. And certainly, thank you on your effort!

  • Cocoy

    I agree with you that we will more likely fall in between the half-baked social services and a downgrade of the credit rating. The former more than the latter… that is if the Finance department continues with cleaning up its act.

    I am aware that the Palace is aware that the biggest frustration in everyone’s mind is how things grind so slowly. There are huge frustrations in just about every aspect of government. Everything seems broken. What they will do about that particular information, is something I don’t know, and I agree with you that things need to move faster.

    You might be interested to know that the palace seems to be interested in introducing its own version of the RH Bill. There was a news item the other day that the President plans to introduce it late May. So it would seem that that particular bill will probably not see the light of day until before the elections, maybe even pushed back into the next Congress. I am not optimistic Congress can pass any bill given that the Merci Trial will begin in May, and that budget for next year would become the priority measure going into the later half of 2011.

  • GabbyD

    the interesting thing to me is that no one is doing budget projects from the government.

    lahat ng analysis na ito, galing sa labas.

    who gets/has to do this for the govt?

    from what i know, the congress doesnt have the capability to do this.

    is this neda’s ambit? the dof? BoT? they should be pubishing reports, giving service support to the office of the president.