Sugar tax and health alarmism

* This is my article in BusinessWorld on August 03, 2017.

bw

“To what extent will the poor merely replace more expensive colas and 3-in-1 coffee with unsafe sugared water in plastic bags, samalamig, or home-brewed sugared coffee, none of which are covered by the tax? … there is simply a great deal we do not know, which is all the more reason to proceed with reserve and caution.” — Emmanuel de Dios, “Just take it, it’s good for you”

Among the tax-tax-tax plan of Dutertenomics to finance the budget swell is premised on health alarmism, that government is concerned about public health and dangers of obesity so it will confiscate more money from the public via the sugar-sweetened beverage (SSB) tax.

Simple joys of the poor like 3-in-1 coffee, mango or guyabano powdered juice, softdrinks, etc. add flavor to meals and whet more appetite so people eat more, which help their nutritional intake. But the government says this is bad and must be taxed.

Before you know it, the government will increase taxes twice, thrice, or even four times, citing whatever health alibi is handy when the real goal is to collect more money for the state, for the politicians, for the bureaucrats and their consultants, not to mention those who are already dependent too much on welfare.

There is one paper from Harvard Heart Letter that said: “Eating too much added sugar increases the risk of dying with heart disease” by Julie Corliss (updated Nov. 30, 2016).

“Sugar-sweetened beverages such as sodas, energy drinks, and sports drinks are by far the biggest sources of added sugar in the average American’s diet. They account for more than one-third of the added sugar we consume as a nation. Other important sources include cookies, cakes, pastries, and similar treats; fruit drinks; ice cream, frozen yogurt and the like; candy; and ready-to-eat cereals.”

Since this seems an authoritative article, then the SSB tax of Dutertenomics suffers from an old disease of selective harassment and taxation.

If they have to be consistent, they should tax not only soda, powdered juice, energy drinks but also cakes, ice cream, chocolates, cookies, yogurt, candy, pastries, samalamig, banana-Q, etc.

If all the claims of various health and environmentalist groups are true — that there are more diseases, morbidity, and mortality due to high sugar consumption, man-made climate change, high maternal death, etc. — then life expectancy of Filipinos should be declining, not rising.

Numbers below show that this is not the case — that life expectancy among Filipinos and other people in the region are rising (see table).

bw2

From only around 61 years in 1970, Filipinos are living longer and healthier compared to the past and they can expect to live to 68 years old, as of 2015. This, despite the fact that more Filipinos are eating and drinking more “unhealthy” products.

So, what to do?

One, the government should not impose a sugar tax. No to selective harassment and taxation of sugar-sweetened drinks and food and confiscation of more money from the pockets of ordinary Filipinos.

Two, if they have to tax some sugar-sweetened beverages, they should tax all of them without exceptions. Just keep the tax as low as possible.

Three, proceeds from the substantial sin tax revenues should be enough to promote health awareness and finance the fight against infectious and communicable diseases on top of regular DoH and LGUs’ health budget.

Health is not just a “right” but more importantly, health is also a personal responsibility.

It is very likely that proceeds from the tax are designed more to pay the multitrillion-peso loans to Duterte-beloved China-funded infrastructure programs. And since this government is run like a one-party state, they will get what they want from Congress.

Tax-tax-tax mentality and policy is wrong and ugly. And this is the philosophy that Dutertenomics wants to impose on the whole country.

Advertisements

Asia taxation and state coercion

* This is my article in BusinessWorld on July 18, 2017.

bw

“I hope we once again have reminded people that man is not free unless government is limited. There’s a clear cause and effect here that is as neat and predictable as a law of physics: as government expands, liberty contracts.”

— Ronald Reagan, former US President

Perhaps the first intellectual in China and the world who championed individual liberty was Lao Tzu (600 BC). He was born more than 2,000 years before Adam Smith wrote and called for a “simple system of natural liberty.” Here, Lao Tzu wrote referring to government:

The more restrictions and limitations there are, the more impoverished men will be…

The more rules and precepts are enforced, the more bandits and crooks will be produced. Hence, we have the words of the wise (the sage or ruler):

Through my non-action, men are spontaneously transformed.

Through my quiescence, men spontaneously become tranquil.

Through my noninterference, men spontaneously increase their wealth.

The “restrictions and limitations” that Lao Tzu mentioned are now what we call regulations, permits, licenses and taxes. The “bandits and crooks” that he mentioned are now the various officials and bureaucrats in government, elected or appointed. While the “noninterference” that he mentioned refers to a minimal and limited government that intervenes and taxes the least.

And talking about taxes, especially Dutertenomics’ TRAIN, the numbers below should be a good reminder that it is largely a train for more government coercion and interventions.

A short definition of these concepts: (a) Total taxes (TT) are the sum of corporate income tax + labor taxes + other taxes; (b) Total tax rate (TTR) = TT/private enterprises’ net and taxable income, in percent (see table).

Total tax rates in East Asia, % of commercial profits

bw2
Source: Price Waterhouse Coopers (PWC), Paying Taxes  annual reports 2009, 2012, 2015, 2017.

Based on these numbers, we both have good and bad news.

The good news is that the Philippines has a declining TTR, from almost 51% in the 2009 PWC report to nearly 43% in the 2017 report. Other economies with declining TTR are Brunei, Singapore, Laos, Indonesia, Myanmar, Taiwan and Japan. Only Malaysia has a deteriorating or rising TTR.

The bad news is that the Philippines has the highest TTR in the 10-country ASEAN, higher than socialist Vietnam, also higher than developed Hong Kong, South Korea, and Taiwan. Only welfarist Japan and socialist China have TTRs higher than the Philippines.

These are the more controversial aspects of Dutertenomics’ TRAIN — (a) hike in excise tax for oil products and new cars, (b) introduction of additional tax on sugar-sweetened beverages, and (c) expansion of VAT coverage to more sectors including business process outsourcing (BPO).

To help dispel the ugly label of “Philippines having the highest TTR in the ASEAN and other East Asian economies,” tax proposals (a) and (b) should have been abandoned, and 12% VAT (highest in the ASEAN) should be reduced to only 6%, probably even 8% and cover more sectors including BPO. The main reason why many sectors lobbied for exemption from VAT is because 12% is high.

To help fund Dutertenomics’ build-build-build plan without those new taxes and tax hikes, the government should cut spending on some agencies and bureaucracies whose welfarist goals and mandates overlap with other agencies. Then rechannel the savings to more infrastructure spending. But this is now wishful thinking as the TRAIN is on a fast track of legislative wreckage.

The issue of more state coercion and taxation will be tackled in the inaugural “Philippine Students for Liberty Conference” this coming July 21-22, 2017 at the Hive Hotel in Quezon City. The event sponsor is the Students for Liberty Philippines (SFL-PH) and the theme will be “live freely, live fully.”

SFL-PH President Joseph T. Bautista has invited me to be one of the speakers on Day 2 of the event and I gladly accepted the honor. SFL CEO Wolf von Laer will give the keynote address. Other speakers will be Thomas Laughlin, CEO of Amagi; Luis Sia, president of UpStart; Shahab Shabibi, CEO of World by Machine Ventures; Mahar Mangahas, president of Social Weather Stations (SWS); Imantaka Nugraha of SFL-Indonesia, and Markus Löning of Friedrich Naumann Foundation for Freedom (FNF).

I will talk about state coercion and legislations in the energy sector, infrastructure, and fiscal policies during the SFL conference.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a SEANET Fellow. Both are members of Economic Freedom Network (EFN) Asia.

PPP vs. ODA, Part 3

* This is my article in BusinessWorld on June 30, 2017.

bw

This is a continuation of two earlier pieces I wrote about that compared two funding schemes of government infrastructure projects in the Philippines — through public-private partnership and official development assistance.

In this vein, I wish to correct the numbers I previously cited in my second piece, entitled “PPP vs. ODA: Part 2.” I wrote that “Vaughn Montes cited the big contrast between ODA-funded SCTEx and the PPP-funded TPLEx. SCTEx… cost nearly twice at $32.8 billion vs. the approved budget of $18.7 billion or P341 million per kilometer. TPLEx cost only P61 million per kilometer.”

Recently, Dr. Bong Montes sent me his presentation during a Management Association of the Philippines (MAP) meeting. The correct numbers about SCTEx are: Cost overruns are from P18.7B to P32.8B; Cost per kilometer is P349M vs. TPLEx P274M. Thanks for this, Bong.

The same presentation indicated a summary of the delineation of risks and values between Public Private Partnership (PPP) funding and government funding (see Table 1).

The main beef of PPP project funding therefore is the transfer of significant risks to the private sector. The shared risks for both private and government are bankability and force majeure.

The “hybrid PPP” plan of Dutertenomics is to award the construction of many big infrastructure projects via foreign aid or Official Development Assistance (ODA) mostly from China, or the annual General Appropriations Act (GAA), then invite local private operators later for the operation and maintenance (O&M).

This plan will invite big current and future controversies for the following reasons.

One, private O&M operators will not take over a facility that they did not design and construct without prior intensive due diligence. If project quality is poor and thus O&M will be high, then bidders will demand high prices for the O&M. The government-contracted construction company (from China) may have undercut the design and quality to maximize profit and potential kickbacks and leave the headache of high maintenance costs to the separate O&M operator/s.

The most optimal scheme is a straight, integrated PPP funding from design and construction to O&M. The private party mobilizes its internal financial muscle and borrows to fund capex, and make sure that construction is of high quality so that O&M will be lower. As a result, the public and the taxpayers benefit, which also means a lower tax burden to pay for the project cost. Moreover, frequent users of the facility will pay every time they use it and taxpayers from far away provinces and regions who seldom or do not even benefit from it will not be burdened.

Two, Dutertenomics’ sudden pivot to China ODA is highly anomalous because China is not exactly a good source of foreign aid even in the recent past. Its share in total ODA in 2014 and 2015 (latest data available from NEDA) is miniscule, only $123M out of total $30.08 billion (see Table 2).

o1big_063017

Only ODA with at least $70M in two years are included here. Other sources of ODA at smaller amount are Austria, Spain, Norway, New Zealand.

Three, PPP projects are generally the fastest way to do things compared to ODA funding, especially China ODA. Project development to groundbreaking takes 27 months through the PPP, 37 months through Korean ODA, 38 months through Japanese government funding, and 40 months on Chinese aid.

The most famous tollway in the Philippines, the North Luzon Expressway (NLEx) was built via World Bank ODA in the 1970s. O&M is private, currently the Manila North Tollways Corp. (MNTC). The independent design checker and certification engineer on its rehabilitation is Norconsult Philippines, probably the first Norwegian company to do business in the country since the ’70s. NLEx toll fee of around P2.50/kilometer from Sta. Ines to Balintawak is the lowest among the many tollways in the country.