The Market Monitor Minding the Nation's Business
By Luis Leoncio
The improved fiscal space that President Aquino and Finance Secretary Cesar V. Purisima have been citing for the string of ratings upgrade the country has received from credit watchdogs should have provided the source of funds for the proposed P2,000 increase in the monthly pensions for retired members of the state pension fund Social Security System (SSS), according to a local think-tank.
“SSS officials estimate the P2,000 hike to cost an additional P56 billion, but sources of funding cited by proponents—such as the P198 million in foregone revenues from idle assets; P13.5 billion plus in collections from delinquent employers; any balance from up to P325 billion in uncollected revenue as of 2009, as well as the P447 billion in assets as of October 2015 that could be tapped until around 2029—are all reasonable measures within the purview of the SSS,” think tank IBON said.
But Purisima, in a speech before the Institute of Corporate Directors last week, said Mr. Aquino vetoed the bill providing for the increase in pensions because it was the right thing to do for the sake of the fiscal health of the country.
“I’m sure a lot of you are people who understand the actuarial issues or accounting, and that there is no such thing as a free lunch,” Purisima said.
“We have been faced with difficult decisions between what is popular but not fiscally responsible, and doing the unpopular thing, which is the right thing to do for the sake of the fiscal health of the country.”
But IBON said the government could very well source the funding for the P2,000 pension hike that Mr. Aquino rejected.
Aside from citing the leeway from the improved fiscal situation under the current administration that Malacañang has played up so much, IBON also said more aggressive collection of corporate income taxes and raising taxes on the richest Filipino families are additional possible sources for the pension hike.
IBON said the opposition of Mr. Aquino and Social Security System (SSS) officials to the pension hike because of its alleged unaffordability is “a failure of political will rather than a lack of resources.”
But Purisima said that “if we need something, we have to come up with ways on how we’re going to pay for it but the President is not here to make popular decisions, but the right decisions for the country.”
He cited the call for lower income taxes through adjustments in the tax rates as another populist move that Mr. Aquino turned down.
“We cannot have piece-meal adjustments in the tax structure so we must do it in a comprehensive basis. That is why I think governance is a really big part of the success of the Philippines in the past six years where our average growth rate is the highest we’ve had in over 40 years,” Purisima added.
“We have been faced with difficult decisions between what is popular but not fiscally responsible and doing the unpopular thing, which is the right thing to do for the sake of the fiscal health of the country,” he said.
IBON, however, said the SSS Act of 1997 (Republic Act No. 8282) authorizes the national government to appropriate funds necessary for SSS expenses.
It added that the reported improved fiscal situation under the Aquino administration already provides room for such much-needed appropriation.
It said the budget deficit was down from P314.5 billion in 2010 to just P46.5 billion in the first 11 months of last year, corresponding to its declining share in the gross domestic product (GDP) from 3.5 percent to just 0.3 percent over the same period.
The P268-billion reduction in the deficit between 2010 and 2015 represented the leeway for the government to subsidize the SSS pension hike.
The additional P56-billion outlay needed for the P2,000 pension hike is well within this range, as well as the supposed P16-billion to P26-billion deficit that the SSS would supposedly incur as its revenues fall short of expenses.
IBON also cited as much as P409 billion that could be earned from more aggressive collection of corporate-income taxes, especially from large corporations.
IBON said potential tax revenues from firms in 2012 were estimated to total P780 billion, yet only P371 billion was actually collected by the Bureau of Internal Revenue (BIR).
“Restoring the corporate-income tax to its 35-percent rate before 2009 would also immediately raise at least P20 to P30 billion,” it added.
IBON said raising taxes on just the richest 1.5 percent of Filipino families would not only reduce the extreme inequality in the country but also raise some P91 billion.
“The richest 156,000 or 0.7 percent of families had a cumulative income of P356.9 billion in 2012 with an average annual income of P2.29 million.
Taxing just an additional 20 percent of this income would raise P71 billion. The next richest 170,000 or 0.8 percent of families had a cumulative income of P198.4 billion, with an average annual income of P1,271,484. Taxing just an additional 10 percent of this income would raise P20 billion, it added.
Over the long-term, more effective collection of estate taxes on these super-rich families would raise hundreds of billions more in revenues.
The BIR’s average annual collection of estate taxes of less than P600 million in the decade 2000-2009 compares poorly with the P3.2 trillion in wealth accumulated today by just the 40 richest Filipinos, IBON said.
Individual member contributions will never be enough and the national government subsidy is necessary to support the welfare of millions of vulnerable Filipino senior citizens, said the group.