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2013 PNOY’s SONA: A Political Economic Minefield

Sunday, July 28, 2013 12:17

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Most of the messages from the President’s SONA[1] have been deeply interventionists.

It reveals of a government that has been largely tax starved, expressed via the Sin Tax Reform Law (expect more smuggling from this) Fiscal Incentives Rationalization Bill or the removal of tax incentives (expect huge lobbying, horse trading and corruption here), and also of an ingrained populist welfare state via the Land Administration Reform Bill, dependency programs such as the Pantawid Pamilyang Pilipino program (4Ps), or conditional cash transfer program) the Responsible Parenthood Law, rice sufficiency program (thus the refusal to establish commodity markets which will eliminate the politically connected middlemen) and the 2.3 trillion pesos national budget for 2014.

The Responsible Parenthood Law and the Kasambahay Law[2] (not in SONA) are deeply disturbing signs of the slippery slope of the Philippine government’s intrusion to household or private home affairs, the freedom of association and voluntary transactions.

The household has been increasingly become politicized.

Of course more regulations means more funding for the government, thus higher taxes overtime. This also extrapolates to higher labor maintenance costs for the households. High labor maintenance costs will not only come from minimum wages, but importantly on the compliance with many bureaucratic requirements. High maintenance costs will entail lesser disposable incomes for households.

If labor costs rises beyond the threshold levels acceptable to the household, then they will drop employing household helpers. It would be a mistake to think that outsourcing (laundry, eating in carinderia etc..) will substitute for household help. If this has been cost beneficial then households would have taken this route even without the ‘law’.

Worst, by dropping household help, one or more productive members of the household may be forced to take on household chores and thus sacrificing productive time and income generating activities.

The same applies with the household’s tolerance towards regulatory compliance. The dynamic where 21 households have access to the formal banking system, due to regulatory obstacles on the opening of accounts will represent as the same deterrent to employing household helps.

So unemployment will rise and a lower standard of living will take place. Or the law will be ignored, and used only when convenient by politicians or exploited by unscrupulous people.

Household help will, in the future, be also used as shills for tax evasion and other political agenda.

Given the current political diktat trend towards regulating household affairs, it won’t be farfetched where the government will determine each and every household activities; such as eating, drinking, sleeping, entertainment, type of education and school, tv programs allowable, choice of one’s friends and marital partner and etc…

One day perhaps, a bureaucrat will be assigned to supervise or oversee a specific number of households either in person or by surveillance camera or both.

Big Brother TV program and surveillance camera based news reporting has been effectively used as popular instruments to impress upon people the acceptability of a paternalistic government.

Finally not all is bad news in the SONA.

I have little idea about the MILF peace framework agreement but on the surface this would seem like a noteworthy positive development. Anything that does away with violence should be good news.

There seem as another good news. The President tossed to the Congress the passage of the proposed Cabotage Law[3] which aims to deregulate the domestic shipping industry.

The domestic shipping industry has been one of the most heavily regulated industry which has been mainly under 5 government agencies and 26 other supplemental agencies. As I previously wrote[4]

Imagine, aside from 5 agencies that directly supervise the industry; namely, Maritime Industry Authority, Philippine Ports Authority, Bureau of Customs Bangko Sentral ng Pilipinas and the Philippine Shippers Bureau, there are another twenty six (26) other agencies directly or indirectly regulate the inter-island freight shipping industry (NEDA’s Philippine Institute for Development Studies). Incredible red tape!

Enticing competition should be welcomed. Consumers will benefit not only from lower prices but from improved quality and increased safety. More competitors will dislodge entrenched inefficient rent seeking interest groups.

But intents and actions differ.

The Court of Appeals (CA) recently halted the FedEX, the international freight giant, from operations citing a constitutional ban on foreign ownership of firms delivering public utility services, according to GMA Network[5]. The case is pending at the Supreme Court.

This ban essentially will cut a wide swath over the said industry which involves 30 or more freight forwarding firms.

Such nationalistic anti-competition tendencies will also cover many industries including the domestic shipping industry and many other industries which will be politically and arbitrarily defined by vested interest groups as “public utility”.

There are 68 associate justices and one presiding justice at the Court of Appeals[6]. 16 Associate justices were appointed during the Aquino administration. In 2012, the President has appointed 3 new associate justices[7].

The President has significant influence on the highest court, the Supreme Court chief justice Maria Lourdes Sereno who incidentally has been a school batchmate of the President has been appointed by the President[8].

I don’t know who among the associate justices presided over the FEDEX case, but given the huge clout by the Philippine President, it would seem hard to see how such a highly economically sensitive case slipped passed him.

Promoting the Cabotage Law may be just a sound byte (to please some lobby groups) or a genuine desire to liberalize. (But why limit to just domestic shipping?)

Nonetheless even if the Congress does deregulate the shipping industry, but if the Supreme Court decides against liberalization then this would mean bad news for the economy.

Overall, the message of the SONA represents a populist, largely interventionist political economic minefield.

[1] Mykiru.ph Noynoy Aquino SONA 2013 Full Transcript (English version)

[2] Department of Labor and Employment Q&A on Batas Kasambahay

[3] Inquirer.net Review of Cabotage Law July 26, 2013

[4] see Diesel Roll Back For PGMA’s Sona, MV Princess of the Stars Tragedy, Economic Realities of Cagayan’s Used Car Trade July 27 2008

[5] GMA Network FedEx to continue PHL operations even after court reso July 23, 2013

[6] Wikipedia.org Court of Appeals of the Philippines

[7] ABS CBN PNoy appoints 3 new Court of Appeals justices May 26, 2013

[8] Inquirer.net Give Sereno a chance, say bishops August 28 2012

This content provided courtesy of Prudent Investor Newsletter

Source: http://prudentinvestornewsletters.blogspot.com/2013/07/2013-pnoys-sona-political-economic.html

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