Money makes the world go round
By Karl Garcia
Election time once again, and I am sure money will always be in issue.
A wise man once said, “Money is no object, because it is always the subject.”
My first article submitted to the Society was about Monetary Sovereignty and Government Spending.
The article can be summarized as follows:
So if we look at what ought to be simple and not rocket science . . . growing GDP . . . we find that the PROCESS of doing that requires at least some kind of science. Maybe it is called applied economics.
Funding debt in pesos so that the choices between military spending and education are not so hard. Removing the constraint of foreign debt.
Getting rid of the barriers to spending (improved budgeting and slow procurement processes) and the drain of corruption.
Making LGU’s a part of the dynamic growth process rather than being along for the ride.
MMT and Taxation
This article will open up a discussion to further understand the MMT concept Micha introduced in her blog, Money Matters.
From that article, Micha has this to say about taxation.
If the sovereign gov’t has the unconstrained ability to spend, why tax at all? Before the adoption of the fiat system, it was necessary for sovereign gov’ts to have revenue source if its gold hoard is inadequate to permit monetary expansion.
Today, taxes assume an entirely different role. We have already covered this in a previous discussion bago naging national celebrity si Manong Joe so I will just outsource this taxation rationale here: Philip Pilkington: Taxation, Government Spending, the National Debt and MMT.
The necessity for a government to tax in order to maintain both its independence and its solvency, is true for state and local governments, but it is not true for a national government.
Two changes of the greatest consequence have occurred in the last twenty-five years, which has substantially altered the position of the national state with respect to the financing of its current requirements.
The first of these changes is the gaining of vast new experience in the management of central banks.
The second change is the elimination, for domestic purposes, of the convertibility of the currency into gold.
Taxes can be made to serve four principal purposes of a social and economic character:
1. As an instrument of fiscal policy to help stabilize the purchasing power of a country’s currency;
2. To express public policy in the distribution of wealth and income, as in the case of the progressive income and estate taxes;
3. To express public policy in subsidizing or penalizing various industries and economic groups;
4. To isolate and assess directly the costs of certain national benefits, such as highways and social security.
“…taxing is never to be undertaken merely because the government needs to make money payments. Taxation should be imposed only when it is desirable that the taxpayers shall have less money to spend, for example, when they would otherwise spend enough to bring about inflation.” – Aba Lerner”
We can draw a conclusion that taxation is optional. But is it really optional?
The proposal of the Binay camp to spare the income bracket of those earning 30,000 PHP a month or below from paying income taxes raised eyebrows. What will be the catch?
Another money issue is the National budget.
As citizens, do we really need to know all about the National Budget? I suppose we all should have a general understanding of the budget.
Popoy gave us his pie chart to show a picture of how the money is spent and who gets a bigger slice and who gets the smaller. DBM through their Budget ng Bayan Series explains the budget preparation.
We always had issues in budget and chief among them is the pork barrel, then the DAP.
There were other high profile issues that gained notoriety because budget deliberations were not open. If we recall senator Lacson exposed Villar’s budget insertions in the C5 extension anomaly. And most recently, the funds for contraceptives were allegedly slashed by 1 billion during bicameral budget discussions, out of sight of public record.
I suggest that budget deliberations be open to the necessary civil society watch dog.
Social Security and Welfare
When the subject is money, we have to think about Social Security and Welfare.
A bill that is supposed to be a landmark bill for poverty alleviation called Magna Carta for the Poor was vetoed by the president because it had provisions on housing that almost equaled the entire budget.
I suggest the next administration push for the bill that institutionalizes the Conditional Cash Transfer program (CCT).
A bill that increases pensioners of SSS to 2000 was vetoed. The palace gave the explanation.
“. . . the proposed increase of P2,000 per retiree, multiplied by the present number of more than two million pensioners, will result in a total payout of P56 billion annually. Compared against an annual investment income of P30 billion to P40 billion, such total payment for pensioners will yield a deficit of P16 billion to P26 billion annually.’ [Comm Sec. Coloma]
Bill in Oz had an excellent article The SSS in the Philippines. Being an observer from the outside, he studied our situation first and offered solutions. He also gave us a glimpse of the Australian system.
Bill suggested that these are the consequences of our system.
There are some serious consequences for Philippine society from the way this worker Insurance system is structured:
There is no unemployment benefit for anyone in the workforce, whether permanent, casual, temporary or contract. This is a major defect.
Casuals, temporary workers and sub contractors have no coverage at all under the Philippines SSS. If casual employees are injured or disabled at work, they are not covered. Women who get pregnant are not covered. And there is no welfare system to provide for such people. The only option available is to rely on help from family. This is a major defect.
When casuals, temporary workers, or trainees get old, there is no real pension available for them. They may get a little from Aquino’s Pantawid Pamilyang Pilipino Program (CCT). They, again, have to rely on help for everything from family. This is a major defect.
When peasant farmers and their families are injured or become disabled there is no coverage apart from what is granted under Aquino’s Pantawid Pamilyang Pilipino Program (CCT).
Because there is a significant extra employment cost for employers with ‘permanent’ employees, there is a big incentive for employers to avoid hiring permanent employees. Instead there is an incentive to hire ‘endos’ (casuals), temporaries or ‘trainees’ for 5 months and then let them go with the more skilled or ‘valued’ ones being rehired after a break. This causes churn in the workforce, with constant anxiety. I suggest it also causes loss of job skills. In recent years, permanent employees as a percentage of the workforce has been falling.
The “Cap’ on contributions to SSS at 15,000 pesos has perverse consequences. Hypothetically, it ‘helps’ permanent workers now by limiting what they are compelled to pay. But is this reality? I suggest it is not. The cap prevents individual workers from providing for their own futures by making extra SSS payments. (This is a feature of Superannuation in Australia where such extra contributions can also be tax deductible). More importantly, the cap functions as a ‘get out of jail card’ for employers. They do not have to pay the 7.7% to SSS for permanent employees above the 15,000 peso cap. This reduces labor costs for employers and saves them money.
In these situations, the threat of poverty is all pervading. Anyone with a permanent job is reluctant to leave it unless a better position is being offered. This is true even if the job entails long, unpaid extra hours, or if the employer is abusive. The same is true for workers in casual positions. As Giancarlo commented recently, “I suspect that most lower income working families are really living hand to mouth and not that interested in the long term. The NOW pervades everything.”
We have the pension systems with past controversies of mismanagement among all of them from SSS to GSIS to AFP’s RSBS. One solution is to have a separate pension system for our uniformed personnel, because they just cannot rely on the national budget forever.
Here is another.
Fair Tax Proposal
The solution to mismanagement is simply good management. But what if mismanagement is perennial? I have this suggestion of adapting an American proposal of the fair tax system:
“The FairTax is a proposal to reform the federal tax code of the United States. It would replace all federal income taxes (including the alternative minimum tax, corporate income taxes, and capital gains taxes), payroll taxes (including Social Security and Medicare taxes), gift taxes, and estate taxes with a single broad national consumption tax on retail sales.“
For the Philippines, we already have the EVAT, so why not remove all the taxes like the income tax, the estate tax which nobody pays anyway, remove SSS, GSIS, Philhealth and then have an EVAT of 20% of all our consumption?
Money and Numbers
Let us play with numbers.
If we have 37 million workers and they spend P8,000 a month and taxes are 20 percent of that, we have P29.6 billion a month and P710.4 billion in one year. We usually have a P2 trillion budget, so I propose we get the the rest from Customs and the Sin Tax.
Eliminate smuggling and we can get the target of P498 Billion from customs revenue and P35 billion from sin tax, so we have more than P1 Trillion in revenues. Just a few trillion to go.
A presidential candidate can promise more budget for certain recipients, but where to source the revenues will always be a challenge. My taxation proposal is a clear example that you just cannot over simplify complicated matters.
Once we figure out how to earn the revenue to finance the national budget and pay our national debt exacerbated by the Marcos debts, we won’t have to worry that all our pension systems will go bankrupt due to mismanagement.
As a closing, here is another thing to ponder,
Do we really need just to learn business math to survive, and to hell with Algebra and Calculus? Irineo’s Money and numbers discussed that and came up with more important questions.
“Duterte said that algebra is useless. Filipinos should learn business math. I think he is wrong. King Mongkut of Siam, of the famous “The King and I” starring Yul Brynner, was a dictatorial man in real life and on screen. But there is a scene where the English teacher tells him of the importance of algebra and he orders everybody to learn it. Could that be the reason why Thailand is quite prosperous?”
So there are a number of things that should be looked at to understand the money and the numbers better when it comes to the Philippines:
- How much money is coming in (collections), being spent internally (costs) and being distributed like SSS and 4Ps?
- How many taxpayers are there? H how many SSS and GSIS members? How many beneficiaries of SSS, GSIS, 4Ps?
- How much money is uncollected? BIR and SSS? How much money is not disbursed or liquidated?
Summary and Conclusion
1.We have discussed Monetary Sovereignty and MMT.
2. National Budget and issues with regards to National budget.
3. Social Security and Welfare.
4. Fair Tax Proposal.
5. General Understanding of Money and Numbers.
Money will always be a part of our lives. There is a saying that there is no escape to debt and taxes, but alas we have a humongous P5-7 trillion debt and a revenue shortfall, so that makes us good escape artists.