PES conference amidst reduced risk and uncertainty

* This is my article in BusinessWorld last November 6, 2017.

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The Philippine Economic Society (PES) annual conference is probably the most cerebral event in the field of economics and business in the country. The reason is that in the afternoon, there are eight simultaneous panel discussions on eight different topics within 1 ½ hours, each panel with 3-4 presenters giving technical papers. A coffee break then another 7-8 simultaneous panel discussions, a total of 15-16 different topics with a total of about 50 speakers and panelists, in just one afternoon.

The morning session is devoted to big personalities in government (Cabinet Secretaries, Congress leaders), multilaterals, and sometimes corporate leaders. Except on few cases, I don’t give these speakers much weight because their presentations are generally presented and discussed somewhere else and in media.

So I became a lifetime member of PES and I have attended all the past PES annual conferences in the past decade or more. The next PES annual conference will be this coming Wednesday, Nov. 8 at Novotel Hotel in Cubao, Quezon City.

This year’s theme is “Growing Amidst Risk and Uncertainty.” I have developed skepticism to subjects with generally pessimistic or alarmist titles so I checked certain numbers to see if indeed there are more economic and social risks and uncertainties now and the near future, both global and national, compared to the past few years.

My skepticism is justified because I found out that there are less risks and uncertainties, not more, now and at least next year compared to the recent past. In particular:

(1) Projected gross domestic product (GDP) growth among the world’s biggest economies US, Canada, Germany and Japan are faster than the last four years. There is projected growth slowdown in China and India, the world’s #1 and #3 biggest economies in GDP-PPP values but the rates are still high at nearly 7%.

In the ASEAN-6, the same pattern of higher growth this year and the next compared to the past four years except in Singapore.

(2) In consumer prices, projections for 2017 are higher than the last four years for the industrialized west but the uptick is not scary nor alarming. For Asia’s big economies, either there is projected decline or the rise will be mild.

(3) It is in fiscal irresponsibility, in the spend-spend-spend culture of many governments around the world, where long-term risks can materialize because of their persistent budget deficit (revenues lower than expenditures). Still, it is good to see that some welfare states like Germany and S. Korea are posting fiscal surplus this year. (see table)

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For the Philippines, note that The Economist/EIU pool of forecasters project a crack in growth momentum next year. The past Aquino administration has managed to post really strong growth compared to many countries in the planet, growth momentum until this year but expected to somehow crack starting 2018.

Sadly, I cannot attend the PES meeting this year because I am going to the US for another conference this week and hence, first time in many years that I will miss this big event. If I could attend, of the 15 different topics in the afternoon, I would attend the Energy Policy Development Program (EPDP) panel on “Power Economics: Prices, Generation and Use” or Trade topic in session A. In session B, I would attend the Friedrich Naumann Foundation for Freedom (FNF) panel on “Climate Change and the Economics of Natural Disaster” or Ateneo School of Government (ASoG)’s panel on infrastructure.

I have written a number of papers in this column on the merits of cheaper, stable energy from conventional sources and the lousiness of unstable, intermittent, expensive renewables that depend on subsidies and priority dispatch to make them “viable.” In Germany, there is a growing momentum of policy reversal in climate and energy policies because the German liberals Free Democratic Party (FDP) and politically wild Alternatives for Germany (AfD) have surged high in the recent Bundestag/Parliament elections last September and these two parties are very explicit in questioning continued renewables cronyism and endorsing cheaper, stable energy from coal.

To summarize: (a) There are less risks and uncertainties now and the near future compared to recent years; (b) Endless fiscal irresponsibility by governments will create long-term risks with rising public debt; (c) Dutertenomics of tax-tax-tax aside from kill-kill-kill in its drugs war may crack starting next year; and (d) Climate and renewables alarmism will see slow policy reversals in more countries soon.

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The sin of smuggling and corruption in the Sin tax law

* This is my article in BusinessWorld last October 23, 2017.

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The intent or purpose of higher taxation is to further penalize an act, work, or consumption, hoping to discourage them by making their prices higher while giving government and lobbyists more freebies and more money.

The unintended result of higher taxation is to encourage illicit trade, production of cheaper but lower quality goods and services while giving the corrupt and extortionists in government more money.

Such may be the experience of the Sin Tax law of 2012 or RA 10351. It has raised lots of money for government, benefitted the universal health care program of DoH-PhilHealth while enriching the smugglers, illicit traders and their government protectors.

Revenues from sin tax has significantly increased in 2013, the first year of implementation of the law. Tobacco tax in particular has more than doubled from P32B in 2012 to P70B in 2013. Meanwhile, estimates of cigarettes smuggling have also increased from 35 million packs in 2012 to 40 million packs in 2013 (see table).

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The CRC estimates are partly derived from the Oxford Economics report in 2016, “Asia: Illicit Tobacco Indicators 2015.”

The rise in smuggling and illicit trade of cigarettes is also shown by the haul of the BoC and BIR in raids in November 2016 in Bulacan, Pampanga and Pangasinan where more than P1 billion worth of illegally produced cigarettes and counterfeits were discovered. In Pangasinan alone, an illegal factory was raided, which led to the discovery of fake stamps and cigarette making/packing machines that can produce up to 3.6B cigarettes a year.

So claims by the government and advocates of RA 10351 that “8 million Filipinos have stopped smoking since the passage of the law” or “at least 70,000 smoking-related deaths have been averted since 2013” and similar pronouncements may not be true after all? Or are these numbers exaggerated?

The numbers in the table and the huge number of discovered smuggled cigarettes by government raids mean one thing — demand and consumption for tobacco products remained high despite the tax hike. Consumers simply shifted from higher-price to lower-price products, and from legal to illegal or informal sources of tobacco and alcohol products. Like lambanog and tuba.

I made an informal, verbal survey of some small sari-sari stores in a rice farming village in Bugallon, Pangasinan when I went there last month, accompanied by a local. I asked the store owners, “Has smoking and drinking incidence by the people declined, stayed about the same, or increased?”

They replied that they do not have the numbers but they observe that smoking and drinking incidence did not drop or decline. Poor people simply shifted to cheaper brands as new brands with cheap products like Mighty sprouted. The well-off continued patronizing the established higher-price brands despite the rise in prices, they simply reduced their smoking by several sticks a day.

For alcohol products, San Miguel beer is literally wiped out in poorer villages because of its higher price but the consumption of Ginebra, Emperador, Red Horse, and other products has remained the same if not increased. Drinkers usually start with the high alcohol drinks and before going home or elsewhere, they wind down to Red Horse.

Sen. Manny Pacquiao introduced Senate Bill 1599 that aims to increase the unitary excise tax on tobacco products from P30 to P60 per pack, and the annual increase be raised from 4% to 9%. His goal is to parrot the goals of the Sin tax law of 2012 — more money for government, less smoking incidence by the people.

Given the above numbers and facts on the ground, what the boxer-Senator would achieve if his bill becomes a law would be more illicit trade and more corruption in government while gaining more political pogi points for his political plans in 2022.

Instead of introducing another round of higher sin tax, legislators and executive agencies should focus on strictly implementing the existing law and plug loopholes. The proliferation of counterfeit products and stamps mean there is proliferation of corruption in government that allowed such things to happen for several years.

There is a limit to state nannyism and government intervention on how people should run their own lives. Government should limit its unlimited itch to tax-tax-tax, regulate-regulate-regulate, spend-spend-spend.