Corruption, taxes, and populist tirades

Orlando Oxales, Fellow of the Stratbase ADR Institute and Lead Convenor of CitizenWatch Philippines

In the President’s 4th State of the Nation Address six months ago, I described as least polarizing his lamentation on what he said in his own words as the “pervasive” corruption in government, an undelivered campaign promise to the people.

“No amount of euphemism can trivialize and normalize betrayal of public trust or any other criminal offense. It is an injury laced with insult. It is both a national embarrassment and a national shame,” the President said then.

The Philippines fell by a big 14 notches in the 2019 Corruption Perception Index (CPI), a rating system on anti-corruption by Transparency International, that dropped our rank 99 places to 113th, the worst since 2012. By any standard, this is a significant and revealing reflection of governance.

The prevalence of corruption is directly linked to the erosion of government revenues that are directly sourced from the taxes and fees collected from individual and business enterprises operating in the country.

Citing the 2017 United Nations Development Programme’s estimates, Deputy Ombudsman Cyril Ramos said in his speech at the National Summit on Crime Prevention of the National Police Commission just five months ago, that the government loses 20 percent of its annual national budget.

Computed based on the 2017 and 2018 budget, Ramos said that, “This translates to about ₱670 billion and ₱752 billion computed lost to corruption in those two years.”

So, in these two years of this administration, this adds up to about ₱1.4 trillion lost to corruption!!

Now compare this to revenues raised from TRAIN, the slew of new taxes implemented in 2018 partly blamed to spark high inflation rates that hit consumers. Quoted in news reports last month, the Bureau of Internal Revenue and Bureau of Customs preliminary data reported the total collections until the third quarter of 2019 was at P91.3 billion, a surge by 107 percent compared to the same period in 2018. Even if hypothetically, the UNDP estimates were off by 50 percent and assume a round, very forgiving figure of ₱300 billion annual loss from corruption, the additional revenues from TRAIN would be offset by hundreds of billions of badly need funds that could have boosted development critical public services such as education, healthcare, housing and infrastructure. Reversing the analogy, if corruption were controlled by only 50 percent, there would be no need to impose these new taxes that actually burden the struggling D and E consumers and the middle class.

As an emerging economy, corruption is even more devastating as it thrives in an environment of inefficient use of resources, shadow ecosystems ideal for illicit trade (smuggling). There are other effects such as low morale, distrust in government, and the deeply damaging impact from the degradation of social values that would feed a culture of even more corruption. This is a scary environment for any investor.

The call to stop new tax measures and instead plug the revenue leaks through good government has been shouted by consumer groups, economists, governance experts and political analysts. But although we have enough thinkers to come up with anti-corruption reforms and there are ready technologies that will solve the inefficiencies and vulnerability of human interaction in government transactions, government finds it easier to impose more taxes than to operational and organizational re-engineering, or in the President’s words, the “self-purgation” of government institutions. Just banner the populist benefits, then unleash resources to mobilize a massive propaganda machinery to paint a great sounding rationale, some political pressure on legislators, and create a perceived enemy and voila! New tax laws. This seems to be one dimension of the populist playbook now in play.

The sustained verbal tirades of the President against some of the country’s industry leaders fits well in this game of public perception that this administration has mastered well. But it is dangerous game that hits on the foundations of the country’s most productive sector. It has damaged confidence and trust in our regulatory environment and will further hit our competitiveness in attracting big investments that government economic managers have been working so hard to improve.

Based on latest government data, there are less than 2 million government employees while private companies account for more than 40.6 million jobs. Just look around your neighborhood and place of work (and play). These are the legitimate private enterprises that have been instrumental and should be rightly credited for not just daily, but minute-by-minute and direct impact on the lives of all the inhabitants of this country. It’s the drive and innovative culture of private business that finds the most efficient and viable way to give its consumers quality and affordable services and products. A culture alien in the expense-oriented bureaucratic milieu of government.

The populist tirades continue almost on a daily basis. Expect them to continue because the “us-versus-them” populist narrative seems to have helped the President’s ratings. Of course, this may just be one observer’s opinion. But it sounds like they have started the messaging for the next presidential elections. Some telling signs are there: keep the ratings high (with more troll operations), hype up a litany of legacies even if he still has two and a half years to go, and reverse the failure to curb corruption and catching (or kill) “big fish” drug lords by declaring war on big business whose core competence is efficiency, productivity and as highly regulated publicly listed companies, must always comply with laws and be transparent. The real drivers of prosperity should not succumb but stand their ground.

 

 

 

This article was originally published in Manila Standard.

 

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