Needed: A tough guy

By: Peter Wallace – @inquirerdotnet Philippine Daily Inquirer, May 31, 2018

I’ve had some criticism, most of it very nasty, attacking me on my support for the Tax Reform for Acceleration and Inclusion (TRAIN) packages 1 and 2, but not arguing the issue and suggesting workable alternatives. This is the mark of a small mind that has not studied the issue, and thus can be ignored. But let me tell you why I’ve taken this stand.

In 1968 (way before many of you were out of your teens, or even born), I visited the Philippines as a regional manager. Over the years I grew the business enough to justify a factory. I chose the Philippines because it was the lead country of Asean at that time, the mid–1970s. I built the factory; I hired people.

Since then I’ve watched the country fall to the bottom of the grouping. There was only one reason for that: the wrong style of leadership — leaders in all branches at all senior levels unwilling, or constrained by excessive legalism, to making tough, unpopular decisions. Fidel V. Ramos got much done, but he had insufficient time to complete it. Gloria Arroyo, with then finance chief Gary Teves, made the hugely unpalatable decision to raise and implement the value-added tax to 12 percent. This met fierce opposition, but brought the country to recovery from a looming financial crisis, and stabilized its money position to start it toward the strong position it’s in today.

But little else was done. The cesspool grew, unaddressed by at least two administrations, not just in Boracay, but nationwide. The Philippines needed a shakeup, a shock to its system. The people recognized this and rejected traditional politicians. They chose Rodrigo Duterte. Duterte is trying, but too many in Congress, in the courts and in the bureaucracy haven’t yet gotten the message that the old ways don’t work, that it’s time to change.

TRAIN is one of those changes. Yes, it’s tough on some today, but bitter medicine — any medicine — is unwanted, yet necessary. The Philippine tax system needed major reformation. Finance Secretary Carlos Dominguez, with support from President Duterte, had the guts to tackle it. Ten years from now they will be lauded for undertaking this reform as businessmen come; businesses grow; roads, bridges, airports and railways get built; healthcare goes truly universal; more students graduate from free college; and so much more. TRAIN will help achieve that.

Yes, it might hurt some a bit now, but as my column next week will show (I’ll back on the TRAIN; it’s far too important not to be), TRAIN hasn’t been the primary reason for the higher prices of goods and services. And anyone who works has more money in their pocket to pay higher prices, while the poor are getting an additional P200 handout (apart from the fact that they buy very little that’s affected by TRAIN).

The 4.5-percent April inflation rate is high, but probably short-lived as it’s due to one-time adjustments. At least two-thirds of that 4.5 percent is due to the fact that the economy is growing fast — nearly 7 percent. That’s typical of a rapidly expanding economy. And that rapidly expanding economy generated 2 million jobs last year, versus less than half that over the past 10 years. Do you want to stop that?

Only four-tenths of a percent of the inflation rate was attributable to TRAIN. That only adds nine centavos to every peso spent, and much of that was to buy “sin” products and sugary drinks.

Let’s put the blame where the blame lies: international price movements and traders using TRAIN as an excuse to raise prices when they can.

Don’t get me wrong, I’m as sympathetic as anyone else to the plight of the poor. And I’ve fought for their betterment for years. But I also look at facts dispassionately and try to avoid emotionalism. The facts are that the poor are not negatively impacted by TRAIN, except in a very minor way. As to the rest of us, inflation has always been among the top concerns of the public. No one likes to pay for anything, and will complain when prices go up.

The worst possible thing Congress can do now is to suspend TRAIN. It is not the reason for the higher inflation. Study the facts, not the emotions.

I fervently hope tough tax reform won’t be the only change pushed by Mr. Duterte. I want a better life for your children.