This story
was taken from Bulatlat, the Philippines's alternative weekly
newsmagazine (www.bulatlat.com, www.bulatlat.net, www.bulatlat.org).
Vol. V, No. 9, April 10-16, 2005
Analysis
IMF’s 11 Disciples in U.P.
The International Monetary
Fund (IMF) – irritated and impatient about the delay in the approval of a
two-percentage point increase of the current 10 percent value-added tax (VAT)
for all kinds of Philippine products and services – has let loose once again its
ever-trusted 11 UP economics professors to push Congress to finally pass the VAT
bill.
By
EDBERTO M. VILLEGAS The 11 University of the
Philippines economics professors – dubbed by media as the UP 11 – went to the
extent of scaring the public if the increase of VAT rate is not approved in
their paper, titled “The Economy on a Cusp: The Proposed VAT Amendments and
their Larger Significance.” The UP paper was released on Good Friday, March 25. Without such an amendment
of the current VAT law, the UP 11 warned that there would be a continuous credit
downgrading of the Philippines in the financial capitalist market and a “massive
loss of confidence” in its sovereign debt with borrowings costs for the country
rising. Thus, there would be “profound social, economic and financial costs to
the nation if one considers –as one should – the macroeconomics instability and
uncertainty that are bound to follow upon a debt-payment crisis.” A case of
play-acting Conscious that their avid
rooting for the payment for our foreign debts may seem overly callous at a time
when government spending for social services is constantly declining through the
years, the UP professors as an afterthought recommended that the government
raise an additional P54 billion ($989.55 million, based on an exchange rate of
P54.57 per U.S. dollar) from other measures to fund social services and
infrastructure after first collecting P54 billion ($989.55 million) for 2005,
the latter to “placate financial markets and pave the way for the refinancing
of maturing debts (thereby avoiding a future default).” This stance of the UP 11 is
play-acting to the crowd at the most and naïve-thinking at the least. When has
the government ever concerned itself with giving priority to increasing the
budget for social services? The authors themselves admitted that social service
as a proportion of GDP has suffered a constant decline with spending for
education dropping from 3.4 percent of GDP in 1999 to only 2.7 percent in 2004,
and that for health fell from less than half a percent to less than a quarter of
GDP. As regards budget for
infrastructure, this is now barely one percent of GDP. With their vehement call
for the settlement first of our foreign obligations to avoid being blacklisted
by the capitalist market, the UP 11’s regard for the welfare of the majority of
Filipinos can therefore be seen as mere crocodile tears. To hide their anti-people
orientation, the authors claimed that the increase in VAT rate is not regressive
(i.e., a tax which burdens the poor more than the rich) but “mildly
progressive” as a form of taxation since records show that the rich pay more VAT
than the poor. And they used as basis the Family Income and Expenditures Survey
(FIES) statistics for the year 2000. This particular study showed that the
percentile share of the richest 10 percent of the population accounted for “35%
of all spending in the country” for that year. They argued that less than half
of consumption in the poorest half of the population is subject to VAT, but
“that this figure rises to 64% for the next-richest nine percent and to more
than 75 percent for the very richest (sic) one percent of the population.”
Besides using old FIES data
of 2000, the above position of the UP 11 is contrary to the very nature of a
consumption tax in that it erodes the incomes of the poor more than those of the
rich. It does not matter whether the rich consume more VAT-covered products and
services than the poor, since in the first place they have higher spending
capacity. What matters is the proportion of an income that the VAT captures. The
authors conceded this characteristic of a consumption tax, when they admitted, “it
is not the main purpose of a consumption tax to be progressive, (italics
supplied) especially a uniform tax which the VAT is.”
Double-speak They even cited a National
Tax Research Center (NTRC) estimate that effective VAT rate is 5.2 percent for
people who earn P20,000 ($366.50) or less, while those earning P500,000
($9,162.54) or more pay 3.66 percent of their incomes as VAT. But they quickly
took back this admission by insisting that the proper basis for measuring
progressiveness is tax on consumption rather than on income, “since not paying
taxes on income saved at most postpones but does not avoid tax payment.” Does this mean then that a
1 percent income tax on the poorest 20 percent of the population compared to a
60 percent tax on the income of the richest 10 percent is not progressive? Could
it be then regressive? But this is absurd! With their convenient definition, the
UP 11 then called the increase in VAT as “mildly progressive” and “mildly
regressive”! This kind of double-speak which the UP 11 engaged in, as used by
Big Brother in George Orwell’s novel 1984 to obtain public support,
characterized the general tenor of their paper. Another major point of the
UP 11 in batting for the rate increase of VAT from 10 to 12 percent is that this
will simplify the implementation of the VAT which is expected to raise an
additional income of P35.12 billion ($643.58 million) for the government.
According to the authors, the reformed VAT should be passed first as originally
crafted by the IMF and there must be no insertion of other provisions that
promote social equity like exempting noodles and ordinary sardines from the
increased VAT rate. These may, after all, mangle and deviate from its original
intent which is to raise government revenues to please foreign creditors and
investors and to avoid defaulting on foreign debts. This bias for foreign
interests of the UP 11 was further seen in its pushing for the temporary
exemptions from the VAT of such big businesses in the Philippines (if not the
biggest) like the petroleum industry, electric companies (particularly the
independent power producers, the IPPs) and buyers of capital equipment
(particularly heavy equipment), the latter dominated by foreign TNCs in the
country. They argued that imposing VAT in the case of petroleum and electric
generation, besides being unwise economically speaking, may promote political
instability at this time when oil and electric prices are all going up. The oil
and electric companies may just pass the VAT costs to their consumers.
UP 11’s
inconsistencies and class bias It may be recalled that in
an August 2004 paper titled “The Deepening Crisis: The Real Score on Deficits
and the Public Debt,” the authors were against the decrease by the government of
electric costs for the consumers, since they see such a measure as a
“politicization of prices” and they would rather leave the movement of prices to
the neo-liberal mythical free market. But when it came to imposing VAT on
petroleum and electricity, among the reasons for their opposition was one based
on political grounds. Thus their use of the argument of the “politicization of
prices” is used according to their convenience whether it favors the wealthy or
the poor. And their class preference for the rich, who succor them, is obviously
showing. While the UP 11 claimed
that they are for lifting exemptions for those formerly excluded from VAT like
doctors, lawyers, entertainers, and others, they argued for the exclusion from
VAT coverage of the very rich as mentioned earlier. Again, while they wanted the
lifting of VAT exemptions for the travel costs of Filipino nationals who travel
internationally and locally, they were for exempting foreign nationals in this
regard. They asserted that exempting from VAT foreign travelers who use
Philippine international carriers and ships would promote the international
competitiveness of the country. The foregoing are just some examples of the
persistent double-speak of the UP 11 in their attempt to grandstand to the
public and assume a pro-people posture. UP 11 as
IMF disciples The UP 11 and the
government are caught in their narrow and selfish vision of options to weather
the fiscal and economic crisis of the country. Assuming a neo-liberal outlook,
the IMF UP 11 disciples would rather let the market be, avoid renegotiating for
the abrogation of odious loans incurred by the government, and not call for the
repeal of all disadvantageous trade treaties entered into by the country.
For indeed, the IMF’s 11
disciples and the government are the main proponents of the capitalist
globalization policy of liberalization, deregulation and privatization which has
long placed the Filipino people in great misery. Their reforms to restore
financial, economic and even political stability to the country would just
exacerbate the present impoverishment of the majority of the people. While the IMF’s 11 UP
disciples console themselves that in the long run all the poor will experience
prosperity if their reforms like the VAT would be adopted, they enjoy the
comforts extended to them by their foreign mentors in terms of generous
consultancy fees and new projects. But the road to perdition offered by the UP
11 will be rejected by the people who are beginning to see the path toward their
true emancipation. And those who serve false masters shall not be there with the
people in their hour of victory. Bulatlat
Edberto Malvar Villegas, PhD, currently chairs the Development Studies Program
of the University of the Philippines in Manila and is Fellow of the Center for
Anti-Imperialist Studies (CAIS) © 2004 Bulatlat
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Pro-VAT paper is
filled with inconsistencies
Bulatlat