Repeal the RH Law?

The CBCP wants the next Congress (i.e. the one that will be elected this coming May) to file a bill that will repeal the RH Law. This might seem achievable at first; but it is actually an impossible dream. The chance of the RH Law being rolled back is extremely small.

In the first place, the next Congress will probably look very much like the present one. Half of the senators will remain in place, and a number of other senators will probably be reelected. The majority of Congressmen will either retain their seats or pass on their positions to relatives or allies.  There will be no big shift in the composition of Congress.

The political dynamics that got the RH Law passed will remain in place after the elections. Aquino will still be the president, and most lawmakers would want to stay in his good side and not go against a law he supported. Public opinion will remain overwhelmingly in favor of the law.
Then the law would generate its own inertia. There would be organizational changes in the Departments of Education and Health, as well as in LGUs: people will be hired, reassigned, etc, to implement it. This in itself is a pro-RH constituency, and this goes beyond those directly involved in RH.  Reversing the law will mean lay-offs, reorganizations, etc. and will be resisted.

Legislators have a general aversion to reversing laws that they have just passed. Take the Cybercrime Law – although everybody agrees that it is defective, it takes forever to reverse because some would want to change parts of it (and the specific parts they want changed would differ) while others would want to repeal the whole law. And all these options have to go through committee; and this takes a long time.
A law which has so much support will have a lot of difficulty even hurdling the committee level of discusions.

If bills will be introduced to change the RH Law, they will have to give way to a reevaluation of the law itself, and this would mean that the law would then have to be implemented for a time. And when eventually amendments to the law will be considered; there would be as many proposals to strengthen it as to weaken it.

The implementation of the RH Law is sure to demonstrate its benefits, and it will show that the claims of its negative effects were exaggerated. Sex education will become part of the standard education curriculum; family planning advice and cheap contraceptives will be routinely available for poor couples. After a few years, even Catholic high schools will decide to integrate sex education in their curriculum. This is because their students would otherwise be at a disadvantage when they take exams e.g. the NCEE or State University admission tests.

The CBCP call to reverse the RH Law is most probably just a political rearguard action on their part. As long as they keep on screaming about it, they hope to deter lawmakers from passing other laws they don’t like, specifically a divorce law. This may work for a while; but if the CBCP keeps it up for too long, everyone will see how little political power the CBCP actually has. The CBCP case against the Divorce law will be a lot weaker, though. After all, the Philippines is the ONLY country in the world without a divorce law.

The CBCP would be better advised to concentrate on other issues than RH or Divorce. Gun control would a better thing to push. If the church pushed for a stricter gun control law on the basis of its being pro-life, it could regain some of its lost prestige. The CBCP could also strengthen its opposition to Mining (after having ‘dropped the ball’ on this issue in the last years).

Growing Importance of Barangays

When I visited the Philippines recently, I noticed that in provincial roads, there were ‘road blocks’ set up in front of elementary schools. These were obviously set up to force motorists to slow down and avoid hitting children. It was literally everywhere: from Pampanga and Bataan, to Bohol, and even Sarangani. It was obviously the work of the barangays in these places.

It was not only in the case of school road blocks that the barangay fulfills a very useful function. One is its role in settling minor disputes, mostly over land. Such disputes need to be put before a barangay resolution committee (Lupon Tagapamayapa), which will try to settle the matter out of court. Only when this fails, would the case be forwarded to the courts. This has meant that the regular courts are no longer swamped with so many minor cases.

The barangay also has a role in approving permits for businesses. For the majority of applicants this is just a procedural question. Sometimes, the barangay would disapprove an application if it is to the detriment of the residents. Or, the barangay may negotiate to have the business hire a percentage of its workers from the area. Some people want to abolish barangay permits  in order to streamline the procedure for setting up businesses. I think it would be better to streamline the required tax procedures, which are more meticulous (and quite useless and outdated) rather than abolishing the barangay permit.

Some barangays have gone beyond their limits in making ordinances. Barangay Ayala Alabang in 2011 made a resolution that drugstores could only sell contraceptives based on a doctor’s prescription. Other barangay councils have made resolutions against mining in their areas.  These matters are properly handled by higher government bodies, at munipal, provincial or national level.

Barangays have been growing in importance, making them prime political targets. This is partly due to the Local Government Code which allots them a share of the Internal Revenue collections. In 2012, the average barangay would receive P520,000/year in assured funds as a result.  Add to this the income barangays have from giving business permits etc. With the increased importance and funds, there are inevitably those who would abuse these positions. However, at the same time, more and more people are taking the barangay seriously and have campaigned to have ‘good’ people elected to the barangay councils. Also, there is an increasing expectation that the barangay will act on a host of things: from roads within the barangay, to traffic, cleanliness etc.

What many Filipinos don’t realize is that elected barangay councils are relatively rare in the world. In most countries, the lowest elected officials are city/municipal councils. In Western Europe, it seems that only Portugal has elected barangay councils (they are called ‘parish’ councils). This means that there is a democratic gap in most other countries, where municipal councils often make decisions that may not have fully considered the situation in neighborhoods or districts.

Having an elected structure at the barangay level comes in handy in many cases. During calamities, barangay officials coordinate the local response; barangays are instrumental in fighting diseases (e.g. dengue, malaria). Even in cases of armed conflict, barangays make for a coordinated evacuation of inhabitants (and are able to better arrange for relief goods).

With their growing importance, people will become more motivated to get involved in barangay politics. Barangay elections will be more contested, and people will be more demanding on the officials who are elected. And all this makes for a more participative democracy in the Philippines.

Needed: A Wealth Tax

With the increased consciousness about the top ‘1%’ wealthiest, there needs to be a corresponding policy aimed to address the ‘imbalance’.  One aspect of this policy would be a Wealth Tax.  A Wealth Tax is based on the logic that for the wealthy, what counts more is what they have than what they earn.

A Wealth Tax in the Philippines could be levied on all assets (minus liabilities) of persons above 50 million pesos. Assets will be valued at their book value (i.e. the actual price paid for them) and not market value. The wealth tax will be levied on all Philippine residents (defined as persons who have resided in the Philippines for 6 months and a day in the last calendar year) on all their wealth. A Wealth Tax paid to foreign governments for wealth outside the Philippines would be credited towards the Philippine Wealth Tax.

The Wealth Tax will, for those who pay it, replace the Capital Gains Tax, the Tax on Interest and Dividends. All donations to private foundations will still be considered as part of taxable wealth (for a period of five years), unless the donor has no corporate or family relations to the foundation’s board.

Why a Wealth Tax?
A Wealth Tax simplifies tax collection. There would no longer be a need to monitor interest payments or even the present value of assets. Tax loopholes using all kinds of fiscal constructions will be closed. The BIR will simply have a file per person with a list of Assets and their book value.  Wealthy people will be paying roughly the same amount every year.

A Wealth Tax is fairer than an income tax on rich people. Wealthy people don’t necessarily have high incomes, but wealth. It helps to make sure that the wealthy pay a fair portion of their wealth in taxes.

A Wealth Tax stimulates investment. It penalizes just sitting on your money, or having assets that are not productive. Those who make productive investments will be taxed the same as those who don’t; but they will make a lot more money. Those who sit on their assets will find that these diminish in value, literally, every year. Since the Wealth Tax will tax you on the book value of investments; if you make a bad investment and the value of your shares of stocks go down, you will continue paying the wealth tax based on the original investment. Only if you sell the stocks and take the loss, will your Wealth Tax liability decrease.

Prerequisites
Before a Wealth Tax can be implemented in the Philippines, a number of things need to be changed:
Bank Secrecy. In the Philippines, the government is not allowed to look into the bank accounts of citizens and residents. This opens the way for people simply to lie about their wealth. In Europe, the principle is ‘privacy of bank accounts’ which means that people’s bank transactions could not be made public, but that the government could look into them. Before any meaningful Wealth Tax is implemented, it is imperative to change Bank Secrecy to Bank Privacy.

Reform Land Valuation Rules. People regularly register their land, for taxation purposes, at a low value (i.e. at book value, or lower). This makes land ownership a potential haven for people wanting to evade a Wealth Tax. Land assessment values should be adjusted upwards regularly, to keep it in pace with the actual market value of the land.  This could be done by implementing a ‘Zonal Land Valuation System’ that species the minimum value for land in given areas. And government could make a rule that it could buy any piece of land at a maximum of some 20% above assessed value. This would compel rich people to correctly state the value of their land, or risk making a big loss if the government decides to buy it.

Implementing It
A Wealth Tax could initially be set at about 2% of the value of taxable wealth – defined as assets minus liabilities above 50 million pesos.  When it is implemented, the tax on the highest income tax bracket should be lowered from 32% to 25%. Also, if one pays Wealth Tax, a number of taxes will be credited to it e.g. Capital Gains tax, interest tax, tax on dividends.

In subsequent years, the rate for the Wealth Tax could be raised, while the income tax and corporate tax rates lowered to counterbalance the effect. This should stimulate the economy while maintaining the level of tax income.

Cash or Kind?

In programs aimed at alleviating poverty, the question is often asked: do we give help in cash, or in kind? On first glance, people will opt to give help in kind, because it feels more concrete. Also, if you give a poor person something like rice, they will really receive rice (assuming, of course, that it doesn’t get diverted by corruption).

The whole logic of aid in kind is that the goods are actually given. but this does not necessarily mean that they will be used, or used properly. In Africa, donors found out that many anti-malaria mosquito nets they distributed free to people were not being used (being “too hot”) or even made into wedding dresses. Often enough, food aid rots in warehouses, or are not utilized properly by recipients.

Are cash gifts better, then? It is also possible to misappropriate cash. Think of the man who uses the cash family support money to buy alcoholic drinks instead of food. But it is this flexibility of use which makes cash a better form of subsidy. With cash, a family can decide to buy corn or cassava instead of rice, or grow camote and use the money to buy vegetables or fish. Or pay the fare for a daughter who goes to the city to become a domestic worker.

Market Distortion
One problem with giving aid in kind is that it distorts the market. If rice is given out for free to some recipients, these people will no longer buy rice from the local merchants, making them lose business and profit. It may end up undermining their business so much that some merchants would go bankrupt. This means that there will be no alternative distribution of rice in case the government supply stops. It also affects the supply of rice for those who are not part of the program.

If aid is given in the form of a subsidy on the price of a product, there would still be market distortion. The experience of Eastern Europe during their communist days shows this. There, the price of bread and potatoes was subsidized, but animal feed was not. So, animals were fed bread and potatoes. People also threw away their one-day old bread. And even when food shortages developed, the price for bread and potatoes remained low, and people continued with their wasteful ways.

Waste and Corruption
Giving in kind gives a lot of opportunity for corruption. Let us again take rice as an example. Rice is first bought from merchants, it is then stored, transported, stored in regional/local centers and distributed to recipients. The recipients need to be identified, ration or ID cards need to be issued. People will have to distribute it, and keep records of each step in the process.

Corruption could range from: getting payments from recipients to get in the list, distributing low-quality rice, paying merchants too much for rice, rice diverted to be sold privately, etc..

There is a also a lot of possibility for waste, especially if the product is perishable, which rice is at some point. Problems in transport and planning would cause the rice to rot in central warehouses, while distribution centers may lack rice. There was a massive over-importation of rice due to corruption, and a lot of rice was spoiled.

Calamities
Distribution in cash is preferable to goods in normal situations. However, calamities are a case apart. Calamities are often accompanied by the physical disruption of the market infrastructure. It would make more sense to distribute goods in kind.

At the same time, people wanting to donate relief should preferably do so in the form of cash. Because there is the possible problem that the things donated e.g. old clothes, are expensive to transport and may be inappropriate for the need. Donating cash to a help agency which in its turn could buy the necessary products would often be a better solution. The cash should be used to buy relief goods as close to the calamity as possible, to minimize transport costs, market distortion and waste.

Alternatives to Feed-in Tariffs

Solar panels are sprouting all over Germany and Spain as a result of feed-in tariff programs by their governments. When governments face the need to develop their solar energy, the question comes up if they should consider feed-in tariffs.  Feed-in tariffs is a policy of governments to pay grass-roots producers of solar electricity higher fees (than traditional electricity rates) for the electricity that they generate. This policy has been extremely successful in Spain and Germany, to the point that so many people are putting up solar panels, and have become a major drain on their governments’ budgets.

The Philippines has very recently instituted a system of Feed in Tariffs for Renewable Energy. I think it will not only not work, it will end up raising the price of electricity to consumers, and be an unacceptable burden to the national budget.

I think that a feed-in tariffs policy may have been a good idea in the past; but that we should now use other strategies for promoting solar power. Feed-in tariffs are potentially a big drain to national budgets; but the main reason for not using them now is that the price of solar panels have dropped sharply in recent years, to the point where the price for generating solar electricity is almost the same as ‘grey’ electricity in some times and places. This means that price is no longer the main obstacle to people shifting to solar. Government programs to promote solar energy should address these obstacles directly.

Solar Bank
The biggest obstacle that keeps households or businesses from installing solar panels is the need for a large expense up front. It is similar to having a mobile phone where you pay for 15-20 years worth of service at one time. The mobile phone industry would not have taken off if this was the case. There needs to be a way to ‘cut up’ the expense of solar power to convenient monthly portions.

The government should put up a ‘Solar Bank’ which would pay for the panels, and to which the buyer could make monthly payments. The bank could charge the household for electricity produced, at slightly below the prevailing price of  ‘grey’ electricity(and at a very low interest), until they are fully paid (which should be between 15 and 20 years (solar panels are expected to last at least 25 years) . Included in this contract should also be insurance coverage, so that people will not continue paying if the panels get destroyed or damaged.

Net Metering
Another measure would be to require electricity providers to offer net metering for a modest one-time fee. Net metering is when a user is allowed to sell (excess) electricity to the grid at the same price that he pays for getting electricity.  This is favorable for those who produce electricity themselves,  from solar, wind, biomass etc. Another advantage is that net metering also reduces the need for batteries, which are a significant part of the expense of solar systems.

In Europe, net metering arrangements mean that a household can ‘sell’ excess electricity to the grid, for the same price, but only as long as it does not exceed the household’s monthly consumption. Beyond that, the electricity provider will only pay the ‘generating cost price’ (i.e. excluding transport and taxes )

Business Incentives
Businesses should be stimulated to adopt solar energy.  In a previous blog, I pointed out that, for commercial and industrial users in Metro Manila, the cost of Meralco electricity is sometimes higher than the cost of solar electricity (Solar Cheaper than Meralco in April). This is especially so during the dry season, when cheap hydro-electric power is less abundant. But businessmen consider not only the cost of solar energy; they also have other concerns, which need to be addressed.

Reliability. Solar electricity depends on the presence of the sun; so the panels don’t produce energy at night and only a little during cloudy days. Companies should be able to combine grid and solar electricity to get a very reliable energy supply. And for this, they would need heavy-duty batteries. I propose that the government subsidize the batteries for solar installations of businesses. Perhaps a subsidy from 25% to 50% of the cost of the batteries would be appropriate.

Resale Value. The government could take measures to develop the secondary market for solar panels. This would stimulate businesses to buy and install solar panels. Some businesses may then opt to install second-hand panels that are cheaper. A secondary market would also stimulate businesses to upgrade their panels when technological improvements improve panel efficiency.

One measure to help stimulate the secondary market is to allow panels to be subject to accelerated depreciation. When the panels’ book value reaches zero, businesses may decide to sell them for a tidy profit, and then buy new panels.

Maintenance. Companies may be unwilling to install solar panels because of perceived maintenance costs and hassle. The government should provide them with technical support, and even training programs for building administrators or maintenance staff, to teach them how to maintain the panels properly.

Of course, businesses should also be able to avail of the loans/insurance from the Solar Bank, as well as benefit from net metering.