Free tuition and irresponsibility

This is my article in BWorld last August 17, 2017.

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There are many reasons why the new law providing for free tuition for all students — rich and poor alike — in all state universities and colleges (SUCs) is wrong, but for this piece, we will limit them to only four arguments.

One, the government has no extra cash to cover extra spending on these already substantial expenditures. This means the deficit — which happens when revenues are lower than spending — that will require new borrowings will become bigger. The projected budget deficit rose from P353 billion in 2016 (during the Aquino government) and projected to rise to P482B this year to P524B in 2018, P576B in 2019 (see Table 1).

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Note that the deficit is based on the cash budget, “the actual deposits and withdrawals of cash of national government agencies from the Bureau of Treasury (BTR) for payment of current and previous year’s obligations.”

If the obligation budget, “the proposed amount of commitments that the government may incur or enter into for the delivery of goods and services in a fiscal year” is considered, the deficit will be much bigger: P923B in 2017, P927B in 2018 and P968B in 2019. The law calling for free tuition in SUCs — enacted in August 2017 while the proposed 2018 budget was submitted to Congress in July 2017 — would fall in the obligation budget.

Two, spending in public elementary and secondary education is still limited and it is unwise to further expand spending in public tertiary education.

Numbers below show that out of the 16 countries and economies (10 in the ASEAN, six in Northeast Asia), hiring of teachers in the Philippines was 2nd lowest in primary/elementary education, second only to Cambodia. In secondary education, Philippines was 3rd lowest, next to Cambodia and Myanmar (see Table 2).

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Three, students who are absolutely destitute do not reach university level. They drop out after elementary or after high school and start working, especially now with the K+12 years of pre-college schooling. So those who reach universities are lower middle class to rich students.

If one sees the cars and SUVs in the University of the Philippines and many other SUCs, one will wonder why these students are getting subsidies. Budget Sec. Ben Diokno even oppose this new law and said that this welfarist program alone will cost P100B/year — on top of existing deficit and high spending.

Four, people’s values will be corrupted because personal and parental responsibility will be assumed by the state. As a result, children’s education from elementary to university level will no longer be the responsibility of their parents but of the state.

Health care is already largely a state responsibility. Soon more parents will be drinking or partying or gambling more often because their children’s education will no longer be their responsibility.

Before you know it, proponents and supporters of this lousy free tuition law will demand that each student in SUCs should be given free laptops and free Internet access. Or that the monthly water and electricity bills of the poor be paid for by the state as well.

The number of free riders, irresponsible people, and tax-hungry bureaucrats and consultants, welfare-dependents and people pretending-to-be-poor will increase.

For any problem, their “solution” is more government, more “tax-the-rich” schemes. Then people will complain of massive wastage, inefficiency, and plunder in government. As government expands, stupidity and irrationality expands.

There are several remedial measures about this new law. One is that it can be questioned and rendered void at the Supreme Court for being anti-taxpayers, anti-fiscal responsibility.

Second, it can be replaced with a new law that will void or drastically revise it, like no free tuition for rich students in SUCs while extending limited subsidies to poor students in private universities.

Three, taxpayers should remember the main authors in the House and Senate and penalize them in the next round of elections.

As someone said: “A government that’s big enough to give you everything you want is also big enough to take everything you’ve got.”

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Sugar tax and health alarmism

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

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“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).

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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.

Asia taxation and state coercion

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

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“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

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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.

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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).

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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.

State central planning vs Household decentralized planning

* This is my article in BusinessWorld last week.

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“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design… Planning leads to dictatorship because dictatorship is the most effective instrument of coercion and the enforcement of ideals and, as such, essential if central planning on a large scale is to be possible.”— Friedrich Hayek

The bigger the socioeconomic unit like a state, the less central planning should be. And the smaller the socioeconomic unit like a household, the bigger the planning should be. The family is a good example of this. Parents take care of their children until they grow up. Once the kids feel they are independent enough, they move out of the house. And moving out is an expression or an attempt at independence of the kids from the nitty-gritty of support and intervention by the parents or guardians.

In contrast, in many countries including the Philippines, as the population expands and as the needs and aspirations of the growing population further diversifies, the state bureaucratizes further and regulates and imposes more taxes. Meaningful decentralization and federalism is muted by high taxes and regulations from the central or federal government so that the states, provinces, and cities are left with little leeway for tax adjustments and regulations.

2017061563250The current tax reform program of Dutertenomics known as TRAIN (Tax Reform for Acceleration and Inclusion) is generally based on envy. While its income tax cut for the low income earners is good and commendable, its tax hike for upper middle class and the rich is not. And the government will hike the taxes of many other products and services including those consumed by the poor and lower middle class — cars, petroleum products, sugar-sweetened beverages, more services that will be covered by VAT.

This government therefore, its politicians and bureaucracies, feel that they have more entitlement to the income and wealth of the upper middle class and the rich. The implicit message is that if people aspire to become upper middle class and rich, the state will go after them, demonize them if they resist paying more taxes. And this is where the advice of Friedrich Hayek above becomes appropriate.

During the BusinessWorld Economic Forum last May 19, 2017 at Shangri-La at the Fort, one of the impressive speakers in the afternoon session was Ms. Vicky Abad of Kantar. She discussed what are the income ranges of upper and lower middle class households and their aspirations. Below is the income class differentiation she made. ONCR means Outside of the National Capital Region (NCR) or Metro Manila (See table).

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Three things are worthy of note in Ms. Abad’s presentation.

One, middle class households in C1, C2, and D classes comprise some 72% of the population or nearly three out of four households. Those in D should include previously bicycles- or jeep-riding people who now drive motorcycles or second, third-hand cars.

Two, while middle income class C1 and C2 are big consumers of fast-moving consumer goods (FMCG) or consumer packaged goods, the class D households drive about 62% of the FMCG market in value contribution.

Three, the key, constant driver of middle class aspirations is being able to provide for the needs of family. Family basic needs, health, and savings are the top three concerns. Followed by friends/bayanihan, car and house, value of work, and social status/rewards like travel.

Many of these things are not sufficiently provided by the government. There is public education, yes, but many middle class including government officials and personnel bring their kids to private schools and universities. There is public health but these people go to private hospitals and clinics when they are unwell. There is public peace and order by the police but these people employ lots of private security agencies to secure their villages, schools, shops, banks, buildings. There is public welfare department but many people still dig deep into their pockets and savings to help their fellow Filipinos struck by severe natural calamities.

With this wide gap between government taxation and low quality of public services, and the rising aspirations of the people, government central planning should decline, and households should be given more leeway, more take home pay via deep income tax cut across the board. Household planning should prevail over state central planning.

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

Asia stockmarkets the past year

Stockmarkets, one year. PH, ID, TH and MY, respectively. Is PDu30 inspiring to business or not? Data from http://markets.wsj.com/asia

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CN’s Shanghai, Shenzhen, HK, TW, respectively. Stocks sentiment in PH seems similar with CN. Could be one reason why Du30 loves

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SG, JP, KR and IN, respectively. In these 11 economies, PH and CN are the laggards for the past 12 months.

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Investors see political and business instability in both CN and PH. Instability in the leadership of Xi and Du30, distrust in the lack of rule of law in these two countries.

Sugar tax and nanny state

Why the DOF’s sugar tax bill in Congress is lousy.

  1. The state is further addicted to tax-tax-tax mentality and policy.
  2. This 2-tier taxation (higher tax for imported sugar) is anti-WTO rules, DFA is correct.
  3. State nannyism (‘protect public health’ alibi) is fuelling more state interventionism. Tax alcohol, tobacco, soft drinks, juices. Soon it will tax litson baboy, litson manok.

See this report from BusinessWorld last week.

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That the state has hiked the tax on alcohol and tobacco products is generally accepted by the public. But taxing further soft drinks, powdered juice drinks, etc. is OA state nannyism. People own their body, not the state and politicians, not the health NGOs, etc. Simple joys by the poor like drinking powdered juice, the state will make these products become more expensive, and certain sectors like health NGOs, medical groups are clapping partly because they will get more tax money.

Earlier, a lady Senator wanted to file a bill banning unlimited rice (“unli-rice”) in restaurants. The usual alibi is “public health concern.” Trying-hard state nannyism, those politicians and state bureaucrats think they are so bright they can plan other people’s lives. Next they will penalize climbing trees and climbing roofs because they might fall and it’s bad for their health and it’s bad for public health budget.

The silent motive here is that Dutertenomics will need lots of tax-tax-tax because it will go into endless borrow-borrow-borrow from China. Improving public infra is good and there are many big private companies, local and foreign, willing to bankroll many infra projects, but this administration intends to please China — the communist dictatorial government, its banks and contractors.