carbon tax

Our Romney Moment

When Mitt Romney went to Israel and wondered out loud about the role of “culture” in explaining the income disparities that exist between the Jews and Palestinians, he was branded a racist. But his intent was not to court the Jewish community back home who almost always vote Democrat, but to engender support from the evangelical Christians who constitute one major wing of the Republican Party.

He followed this up by attacking President Obama for winding back welfare-to-work reforms introduced by the Clinton-Gingrich consensus in the 1990s. These claims were roundly criticised for being untrue, but yet again, the point was not to be accurate, but to create clear points of distinction between himself and the president due to his inability to do so over Obamacare, the single most reviled policy by the GOP.

What is going on in American politics is a battle for the very soul of the nation. Americans due to their history are a nation that believes in self-reliance. Any attempt to improve the welfare of citizens through the government is frowned upon. So fundamental is this principle sewn into the fabric of the nation’s psyche that the centrepiece program of the Obama presidency was challenged all the way to the Supreme Court. Its constitutionality was affirmed on a mere legal technicality.

Every country develops a kind of cognitive bias, it seems, which gets woven into its collective identity. Call it culture; call it institutions, but I believe the general point Romney was trying to make, albeit callously undiplomatic, is essentially true.

In Australia, for instance, the idea of “the fair go”, that each individual should be given equal footing to pursue his or her dreams and aspirations, is part of the social contract that binds the citizenry to each other and their government. This is why when PM Gillard introduced a carbon tax, the struggling blue collar heartland of her Labor Party base could not understand why as it posed a risk to their ability to have a fair go.

The same can be said about the Philippines and its devout adherence to Catholic beliefs in considering the passage of a reproductive health bill. The fact that the nation is still divided over this issue demonstrates Filipino aversion towards any form of state intervention in what is considered a private affair.

If the RH bill is passed, and it most likely will be, at least in the lower house, then you can be sure that the campaign to unseat those who support it will be vicious in the 2013 congressional elections. This is why while some legislators will in private support the measure, publicly they will tend to stand with the opposite side.

That is why a bi-partisan coalition, which is what existed when then minority leader Edcel Lagman who co-authored the bill locked arms with the administration, is so essential. During the prime ministership of Kevin Rudd, Ms Gillard’s predecessor, support for an emissions trading scheme had the backing of then opposition leader Malcolm Turnbull.

Unfortunately, both these bi-partisan agreements were put asunder in the lead up to the vote. Both Messrs Lagman and Turnbull were dismissed by their respective party-mates and replaced by people who chose to use the issue to wedge the voters and the government. In Australia, Tony Abbott, a former seminarian took the helm of the conservatives, while in the Philippines, Gloria Arroyo, a devout Catholic pulled the strings to have her nominee replace Lagman.

As she fights for her political life and personal exoneration, it is clear that she intends to harness anti-RH sentiments in the community to rally to her cause as she awaits trial for various high crimes. If the clergy who have been quite obliging to her in the past stand shoulder to shoulder with her on this issue, they might mobilise formidable resources to oppose the government in the courts and in the congressional races. Already, the Liberal Party faces stiff opposition in the senatorial derby from the UNA Coalition whose leader in the upper house is staunchly opposed to the RH bill.

What this means is that if the bill is defeated before this congress adjourns, it will have a harder time when it reconvenes after the elections. Those who support this bill should not be disheartened, because the struggle to promote their cause is not a matter of merely changing the law of the land, but of fundamentally altering the psyche of the nation.

Those peering from the outside will always wonder, what is so reprehensible about offering universal health care to Americans? Or why is putting a price on carbon so revolting to Australians? The same could be asked about Filipinos as to why they are still so divided over the issue of reproductive health.

As floods ravage the country causing mudslides, floods and misery all around, the question is how will it manage the deadly cocktail of grinding poverty, population growth and environmental degradation without a reproductive health law and program?

To outsiders, it would seem like a matter of good common sense and prudential risk management to have such policies and programs in place. To those that belong to such cultures, however, nothing could be farther from the truth.

A Quarter of the Way

image courtesy of 123rf.com

That is how much of P-Noy’s term of office would have expired by the end of next month. It usually marks the end of the window of opportunity for introducing major reforms. In the case of the US presidency, the current occupant of the White House President Obama was able to introduce his stimulus program, banking reform and of course, the once in a lifetime reform of the healthcare system within his first eighteen months in office.

At the end of that period, the tea party movement rebelled against the direction he was taking the nation and voted the Democrats out of their majority in the lower house of congress. The new Republican-led house’s intransigence over the deficit has blocked any further reforms (witness the failure of the super committee over the weekend), and it will probably take another election to allow the grid-lock to be broken.

As we approach the quarter mark of P-Noy’s presidency, it is worth reflecting on his accomplishments or lack thereof and the conditions under which he has had to govern that may or may not have enabled him to achieve what he promised during his campaign. More than anything, I believe that these first eighteen months have highlighted the inconsistencies in his promises and the inevitable tensions that come about from pursuing them.

Firstly, let me tackle his social contract and the plugging of the fiscal deficit. Due to his pledge of no new taxes, the finance and budget departments have had to rely on better tax compliance and program savings in order to bridge the government’s fiscal gap while attending to social and economic infrastructure programs. This is in a country of very wealthy elites who are averse to paying their fair share of taxes.

Despite my distaste for the government’s attempts at “fiscal consolidation” a euphemism for austerity measures I dubbed the “surplus fetish”, one benefit that I now see with the way in which they have gone about things is that it has exposed the inability of tax agencies even under the best efforts of honest officials to raise enough revenue to meet the government’s social compact obligations.

This is why Secretary Purisima, in a bid to shore up enough revenues down the track has flagged a few revenue measures to congress including the rationalization of fiscal incentives, the indexation of sin taxes, and as recently as this week the raising of a minerals tax similar in vein to the Australian resource rent scheme. These three taken alongside the stricter enforcement of the tax code on self-employed entrepreneurs and professionals could yield an estimated four hundred billion pesos, enough to close the fiscal gap and then some.

Enacting these revenue measures would lift the tax collection effort to a more sustainable nineteen percent of GDP, a position last held in the late-90s when the country eked out a surplus. The reform of the tax and incentives system would allow a more progressive and equitable fiscal expenditure program. One reason why the growth of the last decade was not felt by the broad masses of people was that the growth went largely to big business in the form of profits. Benefits through the tax system could not be shared with the less fortunate as the tax collection rate continued to decline despite the growth.

The absence of a successful asset reform program to tackle landlessness in the rural sector led to continued urban migration and growth of informal labor markets. This normally would lead to greater social insurance spending by the state, but this has only been recently addressed with the conditional cash trasnfers program. By next year, the government believes it will cover two of the four million poorest households. The funding comes from the scaling down of the grains importation program, a low lying fruit. To cover the remainder would require doubling the current thirty billion pesos spent on the program. This can only be accomodated through new taxes.

Secondly, given the new-found consensus around new revenue measures, getting them adopted will entail the exertion of executive will and the full cooperation from the congressional leadership. The legislative record of the government has been rather dismal with only 3.25 of its thirty three priority measures passed this year.

These include the reform of government-owned and controlled corporations, changes to labor regulations covering night shifts for women and the synchronization of the elections in the autonomous region of Muslim Mindanao with the rest of the country. The passage of an ammendment to the Electric Power Industry Reform Act that contained one fourth of the recommended changes of the administration accounts for a quarter-measure (hence 3.25 out of 33 measures).

At this rate, it will take a little over ten years to get all of the priority bills passed, including the reproductive health bill which has been seized on by the local Occupy movement. The actual tally of bills passed was seven, three of them not flagged as urgent including one that granted Philippine citizenship to a certain Marcus Eugene Douthit. The country spends about a hundred and ten billion pesos a year for both houses of congress. This is about sixteen billion pesos per measure, which represents very low value for money.

Contrast that with the performance of the Gillard government in Australia which passed two hundred and fifty measures this year including a highly contentious carbon tax and emissions trading scheme. This is quite impressive considering that it has had to seek an alliance with the Greens and a few independents to see these bills through both the lower and upper house.

In the Philippines, the majority in the lower chamber is always loyal to the president, which makes the Senate the only real check on executive power. But the senators unlike in the past are not particularly hostile to P-Noy, which represents a window of opportunity. Unfortunately, much of the upper chamber’s attention has been devoted to controversies involving the former regime which is perhaps why it has had little time to devote to other matters.

Thirdly, the pursuit of the rule of law and anti-corruption under the rubric of Daang Matuwid (Righteous Path) and the prosecution of the former president have come into conflict with each other. It is clear that P-Noy does not want a repeat of the ongoing saga with the Marcoses. This is perhaps the reason why he sought to bring Mrs Arroyo to justice by sending her to jail before Christmas this year.

The lady he has put to the task, his justice secretary, might have skirted a few legal formalities in order to make that happen. This is the conclusion arrived at by a few dispassionate observers including legal luminary Fr Joaquin Bernas, SJ, dean emeritus of the Ateneo Law School from where a number of the president’s men have been trained.

During the campaign, it seemed that the rule of law was intertwined with bringing Mrs Arroyo to justice for misdeeds done while in office. Now, given the situation where the high court is stacked with her appointees, certain exigencies have to be dispensed with in going after her. Indeed it would be preferable from Mrs Arroyo’s point of view for these cases to be tried immediately while she still enjoys some legal cache with those on the Corona bench.

In pursuing the case against her, P-Noy runs the risk of succumbing to the “dark side” by employing extra-legal or extra-constitutional tactics as she did during her presidency. Rather than lifting the country out of the mud, what could happen is that his presidency could get dragged through it with her. The impending release of the Supreme Court’s order to distribute his family’s hacienda to its poor tenants can be seen as a form of retribution. It distorts the narrative of “light vs darkness” by laying the blame for social inequity and injustice squarely on the president.

At any rate, what economists and foreign investors mean when they refer to the rule of law has nothing to do with prosecuting former incumbents but with the securing of ownership and property rights and the efficient enforcement of contracts. And here once again, the pursuit of daang matuwid has led to the scrapping of a few contracts involving foreign donors and their suppliers for the simple reason that they were signed by the former president. This has if anything maintained the image of the Philippines as a country with a high sovereign risk attached to it.

In conclusion, it is worth reflecting on how the shadow and specter of Mrs Arroyo’s administration has haunted her successor. In the first instance, an absence of public trust in government has cemented the idea in P-Noy’s head that he could only fund his social contract by improving tax collection rather than new taxes. This has been shown to be a false economy of sorts. Secondly, investigations into anomalies committed by her have distracted congress from pursuing his legislative agenda. Thirdly, prosecuting her at all costs has compromised his pursuit of the rule of law, property rights and good governance.

At some point, P-Noy will have to pivot from correcting the errors of the past to ensuring a brighter future for all. To do that, he will have to wrestle with the internal inconsistencies of his reform agenda and exert executive will to get his measures passed as well as restraint when required to show an even hand in prosecuting Mrs Arroyo.

In the end, he would want to avoid a problem known to economists as the winner’s curse. This situation could arise if he becomes overly-invested in the hunt for personal vindication against Mrs Arroyo and her minions. In seeking to settle a few scores with her, he might eventually get side-tracked into a very personal and passionate fight. This could detract him from pursuing a much broader reform agenda for the country. In this manner, he could easily squander the remaining time he has in office and wind up with very little to show for it.