Beneficial effects of privatization

To raise additional funds for the government, Finance Secretary Carlos Dominguez III is looking into the possibility of privati­zing the commercial functions of the Philippine Amusement and Gaming Corp.(Pagcor) and the Philippine Charity Sweepstakes Office (PCSO).

With the government’s financial resources stretched to the limit by the COVID-19 pandemic and the imposition of new taxes untenable under the present circumstances, privatization of government offi­ces engaged in proprietary (or nongovernmental) activities would be a more effective but less painful way of beefing up government coffers.

According to Dominguez, a privatized Pagcor could give the government at least P220 billion in revenues a year, while letting the private sector run the lottery could generate up to P50 billion annually.

In a nutshell, an activity is considered “proprietary” if it benefits or serves the interests of only a particular sector of the public, e.g., operation of profit­-oriented entertainment facilities, as against “governmental” which has the general public as its beneficiary, for example preservation of peace and order.

The rule of the thumb is, if the private sector does not have the financial capacity to engage in certain proprietary activities that, from the government’s point of view, have to be undertaken for the time being or to encourage later on the entry of private business, government is justified in taking on that task.

But if the private sector already has the capability to take on those activities, it makes good business sense for the government to give way and focus its attention instead to the performance of governmental functions.

As the political adage goes, the business of government is governance.

The gambling and lottery operations of Pagcor and PCSO, respectively, are clearly proprietary in character. They are profit-making activities that are best left to the private sector to operate and maintain.

There is no dearth in the country of business people who have the managerial expertise and financial resources to efficiently and profitably run gambling houses, lotteries and other games of chance under such terms and conditions that the government may impose.

Note that the highly profitable gambling casinos in Macau, China and other parts of the world are privately owned or managed, but regulated by their governments.

Like other government-owned and -controlled corporations, Pagcor and PCSO receive budgetary allocations every year from Congress to fund their operations.

On top of the taxpayers’ money, they have access to billions of pesos in revenues from their operations to defray administrative or related expen­ses within certain limits.

It is an arrangement that, unfortunately, is prone to abuse and has resulted in countless disallowance notices (which are often ignored) from the Commission on Audit.

Because of the easy availability of funds, Pagcor and PCSO have become virtual “cash cows” from which funds can be secured or ghost projects funded for people close to the powers-that-be.

Pagcor and PCSO justify their existence by saying that a substantial portion of their earnings goes back to the public by way of the subsidy or financial support they give to some of the government’s health, social and educational programs.

For starters, privatizing ­Pagcor­ and PCSO would save the government billions of pesos in annual budgetary allocations that would be better off being given to offices that perform critical government functions.

With bureaucratic procedures out of the way, the private operators of Pagcor and PCSO can quickly modernize their facilities and come up with effective promotional campaigns to attract more patrons and gene­rate more revenues.

For the privilege of opera­ting gambling and lottery facilities, the government can require them to pay a fixed annual franchise fee or a percentage of their gross earnings after deducting operational expenses.

And part of these revenues can be used to fund the government’ health, social and educational programs.

It’s a win-win situation, with the government getting the upper hand because it is assured of funds without breaking a sweat, except for regular auditing work and without having to make provisions for two budgetary allocations. INQFor comments, please send your email

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