Rationalizing incentives good economics but poor politics

Riza Lozada

(Conclusion)

“Rationalizing fiscal incentives is good economics’, but poor politics,” Diokno said. “Why can’t the Aquino III administration that is committed to the ‘straight path’, to doing what is right, do the right thing?” he asked.

He added that among the Asean-6 countries, the Philippines has the second-poorest quality of public infrastructure, as he cited data from the World Economic Forum’s 2013 Global Competitiveness Report.

Little has been done since the Global Competitiveness Report came out in 2013, he added.

“The much-vaunted public-private partnership projects are bogged down by indecisiveness at the top and bureaucratic delays. After three years, only a few PPP projects have been awarded,” the former budget secretary added.

“The first and smallest project (the Daang Hari Highway) is only one-third complete. How many more PPP projects will be awarded, started, and completed before President Aquino steps down from office, remains a big mystery,” he said.

In the meantime, he said, the country’s stock of physical infrastructure has suffered a huge loss as a result of a series of man-made and natural calamities—the Zamboanga civil strife, the Bohol-Cebu earthquake, and the killer typhoon Yolanda.

“In the quest for better, ampler, and more reliable public infrastructure—a precondition for higher, sustained, and more inclusive growth—Mr. Aquino and his successor ought to have a vigorous, well-prepared, and well-funded catch-up plan of action,” he said.

Government figures confirm Diokno’s fear: they showed that the total foreign investments (FI) approved in the third quarter of last year by the seven investment promotion agencies (IPAs)—the Board Investments (BOI), Clark Development Corporation (CDC), Philippine Economic Zone Authority (Peza), and Subic Bay Metropolitan Authority (SBMA) and the Authority of the Freeport Area of Bataan (Afab), BOI-Autonomous Region of Muslim Mindanao (BOI-ARMM), and Cagayan Economic Zone Authority (Ceza) reached only P18.3 billion or 44.4 percent lower than the P32.9 billion a year ago.

The total approved FI for the first nine months of 2014 reached P91.8 billion or a 35.4-percent decline from the P142.1 billion a year ago.

The economy also grew a weak 5.3 percent in the third quarter mainly as a result of the government’s poor spending clip, which would have cushioned a slowdown in transfers from Filipinos working overseas.

Agriculture output was also down as a result of not only the impact of strong typhoons during the period but the worsening backlash of competition from low-cost imports if not smuggled farm products.

By November last year, it was clear that the year would end with a budget deficit way below ceiling despite the ramping up of expenditures at the tail-end of the year. Figures at the Department of Finance (DOF) showed that the national government incurred a budget surplus of P6.8 billion in November, higher than a year ago’s P1 billion mainly as a result of expenditures contracting 8 percent year-on-year, which was twice the 4-percent drop in revenue collections.

Public spending in the first 11 months grew an anemic 5 percent to P1.76 trillion from P1.68 trillion a year ago.

Diokno said the government has nobody to blame but itself as Congress had religiously approved the President’s budget before the start of the fiscal year and nearly intact to the last figure.

“He can’t also blame the Cabinet members since they’ve been on the job for more than four years. It would be a stretch to argue that Mr. Aquino’s top men are still ‘learning’ on their jobs,” he added. “It can’t blame the past administration. That would be ridiculous.”

Diokno said the most probable cause of underspending was poor budget preparation since the President’s budget or the budget he transmits to Congress contains many programs and projects that are not ready for implementation.

“Worse, it includes projects that are yet to be identified. In brief, the Department of Budget and Management (DBM) has failed to do its job carefully and diligently,” he said.

He said the DBM allowed a lot of “fat” in lump-sum appropriations within agency budgets and under the Special Purpose Funds in the 2015 President’s Budget in response to the Supreme Court decision on the unconstitutionality of the Disbursement Acceleration Program (DAP).

He also saw a lot of “fat,” for instance, in the Miscellaneous Personnel Benefits Fund (MPBF).

“The enormous gap between actual budget deficit (total revenues less total disbursements) versus planned deficit suggests the severity of unmet expectations. Agency heads are not delivering public services that they promised Congress they will deliver,” he added.

The DOF has become skilled in twisting the figures to represent the smaller deficit as a plus factor and not as an indicator of failure.

“The planned budget deficit for 2014 is P266 billion, which is consistent with the optimistic GDP growth target of 6.5 percent to 7.5 percent. Lower-than-planned deficit means government underspending, assuming revenues on target, which then means lower GDP,” he said.

However, the DOF cannot attribute the lower deficit to higher-than-planned revenue collections since actual revenue collections were short of planned revenue targets.

Meeting the targets is what matters and not the supposed exceeding of collections compared with those of previous years that most collection agencies play up.

Diokno also coined the term job-shedding growth to describe the contradictory economic indicators of high unemployment rate and poverty incidence and fast economic growth,

“With economic expansion showing some signs of weakness, what kind of future can Filipinos expect?”  Diokno said about the recent slowdown in growth of 5.7 percent in the first quarter.

Diokno said that nine out of every 10 Filipinos or 90 percent did not feel the 7.2 percent GDP growth that the country achieved in 2013.

“This suggests that the strong growth was narrow and shallow. It was far from being inclusive,” Diokno said.

Recent International Labor Organization (ILO) unemployment data also showed the Philippines has the worst unemployment rate among Asean members and Asia, including China and India.

The ILO data showed the Philippines unemployment rate was 7.33 percent, followed by Indonesia, 6.04 percent; Myanmar, 3.5 percent; Malaysia, 3.21 percent; Singapore, 3.1 percent; Vietnam, 1.94 percent; Laos, 1.41 percent; Thailand, 0.76 percent; and Cambodia, 0.4 percent.

ILO said that last year, China and India had 4.59-percent and 3. 69-percent unemployment rate, respectively.

The government’s only poverty reduction program is the massive infusion of public funds through dole outs or its conditional cash transfer (CCT) program, which is funded with P62.6 billion in this year’s budget from a 2013 budget of P44.2 billion.

According to the Department of Social Welfare and Development (DSWD), which implements the program, the CCT was expected to benefit 4.5 million households and 4.2 million school children.

But Diokno said that based on recent survey results, the CCT program, now on its fifth year, has not stopped the rise in poverty incidence. He thus called for a reevaluation of its implementation, which he said should tell us if the program really delivered on its promises and if there are better ways of achieving its objective, which is to minimize dropout rates of poor students.