Thursday, July 31, 2008

SONA and the VAT

In my last post, I wrote that GMA needs VAT in order to support her band-aid projects. Let me expound on the matter.

In her SONA, GMA was firm on her decision to continue imposing VAT. Explaining her stand, she said:
Kapag ibinasura ang VAT sa langis at kuryente, ang mas makikinabang ay ang mga may kaya na kumukonsumo ng 84% ng langis at 90% ng kuryente habang mas masasaktan ang mahihirap na mawawalan ng P80 billion para sa mga programang pinopondohan ngayon ng VAT. Take away VAT and we strip our people of the means to ride out the world food and energy crisis.
It is basic that tax is the lifeblood of the government. Equally basic is that people avoid tax like the plague. Thus, GMA is in an unenviable position of justifying an unpopular tax measure. This may have prompted her to follow up her previous statement with:
We have come too far and made too many sacrifices to turn back now on fiscal reforms. Leadership is not about doing the first easy thing that comes to mind; it is about doing what is necessary, however hard.
Yes, it has been four years since her 2004 SONA wherein she revealed our budget deficit problem, which led Congress to pass several tax laws (including the revised VAT). Yet, we are nowhere near solving our budget deficit problem. Instead of doing what is truly necessary as she herself espouses, she has actually done the first easy things that come to her mind.

Instead of using the VAT windfall for meaningful projects, she has used the extra revenue for short-sighted projects.

To be more specific, the government is planning to use (or is actually using) VAT windfalls for the following and like projects:
1. P500 power subsidy to lifeline power users in Metro Manila;
2. Fertilizer subsidy to farmers amounting to P37.8 million;
3. Proposed fuel subsidy to public utility vehicle (PUV) drivers amounting to P3.3 billion; and
4. Food-for-school program

See the pattern? All are stop-gap measures to stem the people's discontent for the moment. And all, except perhaps for the fertilizer subsidy, are merely dole-outs.

It is clear that these programs are populist moves in order to show the people that there are things being done on the most pressing issues of this year: electricity, oil and food (On a side note, it's funny that despite these populist programs, GMA has remained hugely unpopular). However, there is the concern that these programs will die a natural death once these pressing issues become old news. And at this early stage, the administration's most visible program, the food-for-school program, has been scaled down.

Moreover, these programs will not change the fact that these people will continue to live a food-to-mouth existence. It will not change the number of people below poverty line. Despite the seemingly good intentions, these people will remain poor until genuine reforms are implemented.

If the government is not going to use the VAT windfalls for vital projects, maybe it would be better if the imposition of VAT is lifted. The people can find better use for the money in these hard times.

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