A supertyphoon

After the city spent weeks getting thoroughly drenched by the monsoon and the typhoon, I have to admit that I’m glad for the relatively good weather that Manila is supposed to enjoy this week.  The cold and damp are definitely not an asthmatic’s best friend.

I have a feeling, though, that a tempest of a different kind may well be giving everyone headaches before very long.

About a month or so ago, we all began to feel the impact of the TRAIN law, which is now being put into effect.

From gasoline to grape juice, from toothpaste to tissue paper, prices of almost everything on the grocery shelves have been slowly but surely inching higher and higher.

And in homes across the country, frown lines on the foreheads of family breadwinners have become progressively more pronounced.

It hasn’t helped that the peso-to-dollar exchange rate has also been climbing.

Some pundits have said that this is good for the national economy, but I can’t find the heart to agree.

More resources

For one thing, the fact that it will now take more pesos to buy a single dollar means that the country will have to spend more in terms of pesos to meet the foreign debt payments that are now falling due—and these payments, unless I miss my guess, are only for the interest on our debts, and not the principals.

It’s now taking even more of our financial resources to pay up on our foreign debt, and we’re not even making that much of a dent in the principal amounts.

And then there’s the fact that the economy is heavily reliant on imported raw materials, the most important of which is oil— on which higher excise taxes have just been imposed under the TRAIN law.  What we’re looking at, therefore, is a scenario where the oil companies will have to shell out even more pesos for every barrel of oil by reason of the foreign exchange rate alone, and on top of that, pay higher excise taxes than before.

Which ultimately translates to higher prices for bunker fuel, gasoline and diesel, all of them indispensable resources for just about every sector of the economy.

Needless to say, this inelegant combination will almost certainly result in higher retail prices for almost every commodity sold to the citizenry, from food to frocks, from books to batteries, from soap to soft drinks.

Still others might say that the rising exchange rate will favor exporters, who will now find more pesos in their pockets from the sales of their products.  At first blush, this is true.

However, a look beneath the surface will show that these higher sales figures are not a result of greater productivity nor of an increase in the number of items that were actually sold—and therefore, do not indicate real growth for the export sector.

Any increases in peso sales under such circumstances will also eventually be offset by rising production costs that are the inevitable offshoot of rising oil prices and the cost of raw materials.

Bumpy ride

Any way you look at it, it seems to me that we are all in for a rather bumpy ride ahead, and I rather doubt that the situation will improve any, particularly since the next phase of the TRAIN law kicks into high gear in the next few weeks.

Unless I’m mistaken, only one senator has stepped up to the plate and pledged to sponsor this second part of the TRAIN law.

Compared to the several who stepped up to bat for the first part of TRAIN, people could be forgiven for wondering whether the lack of sponsors for TRAIN Part II means that the Senate has finally come to realize how unpopular the TRAIN has become, and how unfavorably it has affected the daily lives of Filipinos from one end of the country to the other.

Perhaps the root cause of the morass we now find ourselves in is the unfortunate fact that while the rates for direct taxes—particularly individual income taxes—were reduced, the rates for indirect taxes, notably excise taxes on petroleum were significantly increased and the VAT coverage were expanded limiting the exemptions to necessities.

As even the freshman accounting students can tell you, direct taxes such as income taxes are paid by the persons or entities on whom they are imposed—in other words, the responsibility for paying them can’t be passed on, shifted, or transferred to anyone else.  However, indirect taxes like the VAT and excise taxes are a different story, and more often than not, they’re passed on to the consumers—something that is clearly happening now, to the increasing dismay of people from almost every walk of life.

The TRAIN law, as everyone knows, reduced income tax rates for individuals, even as it increased the rates imposed under the excise tax system and rationalized the VAT rules by expanding its coverage, evidently hoping to offset the revenue losses from one with the additional revenues from the other.

Sadly, the framers of the TRAIN law evidently didn’t take several facts into consideration.

The first is that the reduced income tax rates benefit only a small sector of the population; minimum wage earners, who make up the lion’s share of employees and workers across the economic spectrum, have nothing to gain from these lower income tax rates, precisely because they don’t pay income taxes at all and their wages won’t increase unless the government says so—and it doesn’t sound like any such increase is in the offing.

But because they’re consumers just like everyone else, they have to contend with escalating retail prices brought about by the new excise tax and VAT rates.

I don’t think I’ve ever come across a more contentious situation.

It is one thing to increase the rates for one particular type of indirect tax.

But to increase the rates for two types of indirect taxes—VAT and excise taxes—which are imposed on so many goods and services, including many basic commodities, is, to my mind, tempting the Fates.

All this just goes to show not only what a delicate balancing act the calibration of tax rates really is, but that perhaps it is time that public finance policies took into account not just the figures generated by increasingly complicated equations and models, but also the experiences of the working public, for whom the daily business of survival becomes more challenging with each passing day.

Uncomfortable truth

Because the uncomfortable truth is that no economic model —no matter how complex—can truly predict the highs and lows of everyday life, and the consumption habits that go with it.  Technical expertise has its value, but the hard-earned wisdom of daily life is something that no one should ignore, underestimate or discount, especially in making decisions that will have a tremendous impact on millions of lives.

Before I sat down to type this article, I had a chat with a friend of mine from my hometown, who told me that his wife was becoming increasingly disturbed at the prices she was seeing on almost everything in the local grocery store, from ground beef to fruit juices to laundry soap.

She couldn’t shake the feeling, he said, that the worst was yet to come, and I have to admit that I can see where she’s coming from.

But my friend and his wife, at least, have the consolation of jobs that pay well enough for them to be able to put food on the table three times a day, with the occasional snacks and gastronomical indulgences in between.

But what about the street sweeper, the taxi driver, the sales person, and all those who work in jobs that pay no more than what the minimum wage law decrees?

The rains of the monsoon may have gone on hiatus for now, but I fear that when the next phase of the TRAIN law—aka Trabaho—trundles out of the Government’s station, its cargo may not be the elements for economic development, but the ingredients for a perfect storm of a different kind.

Let’s hope the stationmasters realize this, before we all get caught up like sodden ducks in an economic tempest that not even Gene Kelly warbling “I’m Singin’ In The Rain” can get us through.