Rating on the wall
The writing is already on the wall: This battle royal over the “sin tax” bill in the Senate now centers—simply—on the “appropriate” rate of increase in the excise tax on tobacco and alcohol products, and it is no longer about the wondrous splendor of the bill, such as its health benefits and miraculous economic impact.
As we all know, after the bill breezed through the House of Representatives, with hardly any thorough discussion of the issues, the Aquino (Part II) administration is now trying to push its version of the bill in the Senate by citing the many splendored things about it.
The boys and girls of our leader Benigno Simeon (aka BS) claim to the senators, for instance, that their version of the bill can raise for the government yearly revenue of some P60 billion. Among the controversial provisions in their version is the increase in the excise tax on low-grade cigarettes by almost 1,000 percent.
At such a hefty—perhaps even arbitrary—increase, the “sin tax” bill may end up forcing the “smokers” among the guys down here in my barangay to use some cheaper imported brands that will surely be brought into the country by smugglers.
So, how can the administration raise its revenue by P60 billion—by running after the smugglers? Good luck, boss!
Anyway, certain senators find the bill a bit suspicious, as they note that the P60-billion revenue increase claim is only a myth. Well the BS boys and girls themselves cannot even show the senators how they can hit the P60-billion target.
In fact, the earlier version crafted by the group of Sen. Ralph Recto, who is even an administration senator, provided an increase in government revenue of P15 billion, although more than P12 billion of the increase will come from tobacco and only about P2 billion from alcoholic drinks, including beer.
The boys and the girls of the administration attacked Recto for what they called a watered-down version of their “sin tax” bill, insisting the Senate should pass the 1,000-percent increase in the excise tax on the lowest grade cigarettes.
Certain senators, including the popular Senate President Juan Ponce Enrile, reacted strongly to the media attack against Recto. Based on their recent media offensive, therefore, the boys and the girls of our leader BS are shifting their pressure points on the senators, away from the hazy revenue projections and other multi-splendor claims on their version.
Recent reports, for instance, quoted the boys and the girls of our leader BS as saying that the Senate must pass the “sin tax” bill or else…
Well, for one, the Philippines may fail to receive an upgrade in its credit rating from the largest international agencies, namely, Standard and Poor’s, Moody’s and Fitch. We all know that, as one their “accomplishments” during the six-year term of our leader BS, the Palace boys and girls want to bring up the country’s credit rating to the so-called investment grade level. And so they make it appear that the “sin tax” bill is some sort of a condition for the upgrade.
Really? In all my more than 35 years as a newsman, that was the first time I heard credit rating agencies imposing conditions on their clients like the Philippines. Really, since when did they begin to meddle with the internal policies of their customers?
One of those quoted in the reports was Moody’s vice president Christian de Guzman, who is the senior analyst in the agency’s sovereign risk group based in Singapore. I asked him whether the following statement, attributed to him in quotation, was fairly accurate:
“One of the key ratings constraints of the Philippines is the low revenue mobilization relative to peers.”
“It would be an indication that the Aquino administration can leverage its high approval ratings and political capital into meaningful progress on legislative reforms.”
Here is his reply: “The quotes are indeed accurate, but please allow me to present the full quote in its entirety, which was dated the week of Oct. 22 (the news report came out on Oct. 26—Breaktime): “One of the key rating constraints of the Philippines is the low revenue mobilization relative to peers. As such, the passage of the sin tax bill or other measures designed to boost revenues in a sustainable fashion would be positive for the credit. However, our rating incorporates a range of considerations, including those in which the Philippines outperforms its peers.
Given the varying estimates provided by different versions of the bill discussed by Congress, it would seem that the actual impact of the sin tax bill on fiscal health is actually quite limited. Nevertheless, it would be an indication that the Aquino administration can leverage its high approval ratings and political capital into meaningful progress on legislative reforms.”
De Guzman continued: “As you know, we upgraded the Philippines’ sovereign rating shortly thereafter (on Oct. 29)—even though the excise tax reform had not passed. In no way did we imply that the passage of the sin tax bill/excise tax reform is a prerequisite for upward movement in the rating, and certainly our rating action is evidence of that. Our ratings are not contingent on any one particular data point or legislative development, but should be regarded as a comprehensive summation of ‘the big picture.’”
There—it seems to me that, by indicating the “sin tax” as a prerequisite for the country’s credit rating upgrade, the Palace boys and the girls are omitting a lot of things that we need for the upgrade. In the news business, we have a term for it: cherry-picking.
Another executive quoted in the reports was Philip McNicholas, Fitch director for the Asia Sovereign Ratings. I asked him the same thing: Was the statement attributed to him fairly accurate?
McNichols replied: “Fitch does not require the excise tax increase as a condition for upgrade. Fitch also does not provide policy prescriptions to issuers.
“As we have regularly stated in the past, the Philippines has a narrow fiscal revenue base, which constrains fiscal space for infrastructure investment that might lead to higher non-inflationary GDP growth.
“As such, broadening that revenue base, be it through increased excise taxes or some other means, would be viewed as a credit-positive.
“The quotes you mentioned are accurate but are only sections of my reply to the journalist who wrote the original article on Bloomberg.
“At no point in my original reply to them did I state that an increase in excise taxes was a required condition for positive rating action by Fitch.”
There—to the credit rating agencies, the Aquino (Part II) administration must raise its revenues through whatever means, period. You know—such as by lessening the graft and corruption at the Bureau of Customs or the BIR.
Really, it is a lie to say that those agencies are actually taking a stand on the issues over the “sin tax” measure, such as the 1,000-percent rise in the excise tax on low grade cigarettes that is being pushed by the administration at all costs for some mysterious reasons.
