Govt. & Taxes, Philippines

Wednesday, March 19, 2008

Lent and food prices

Lent is among those big “retreat days” for Filipinos due to the 4-days weekend. Many of those living and working in Metro Manila and other big cities retreat “back to the provinces or far away municipalities” and enjoy less stressful life where the air is cleaner and food prices are cheaper. But not this year’s Lent, it seems.

Recently, food prices in both global and domestic markets have been rising rather steeply. In 2007 for instance, world food prices have risen by almost 40 percent. And just this year, Philippine rice imports value have increased from $474 per ton in January to $708 per ton this month, an increase of 49.4 percent in just 2 months! And mind you, these are rice imported from our neighbors in the region, mainly from Thailand and Vietnam.

The volume of rice importation has also been increasing recently too. In other years, average importation was around 1 million MT a year. In 2007, rice import was 1.8 million MT, and this year, projected imports will be 2 million MT.

A country imports rice or chicken or shoes or any other commodity to plug the gap between a low domestic supply and high domestic demand. The higher the gap between the two, the higher will be the inflationary pressure of the undersupplied commodity. Hence, the need to import the projected gap in order to stabilize the price.

So food prices are the result of the supply-demand dynamics. As demand increases, supply must increase by similar rate, at least. If the increase in supply is larger than the increase in demand, then that country will experience price decline (or “deflation”) of that commodity, or it must export the surplus supply to stabilize domestic price, say to its previous year’s level.

Domestic demand, say of rice, is affected by many factors like change in appetite and preference, change in income, but the biggest factor is population growth. The Philippines’ population on average increases by 1.8 million people a year, net of death and migration. If each person is consuming 0.2 kilos of rice a day (roughly 4 cups equivalent), then consumption in one year is around 73 kilos per person. With 1.8 million new people a year, that’s 131.4 million kilos or 131,400 MT a year increase over the previous year’s total demand.

Domestic supply, say of rice, is also affected by many factors, like total hectarage devoted to riceland, irrigation, occurrence of very strong typhoons, price of fertilizers and other inputs, adoption of more high-yielding varieties, and so on. But the biggest factor is profitability of the farmers to continue producing rice, or stop planting and convert his riceland into a cattle pasture area and become a tricycle driver or construction worker in the cities. Hence, the bigger the projected profitability of producing rice, or corn, chicken, tilapia, pork, beef, etc., the bigger will be the incentive to expand production. Which stabilizes price, and consumers will not complain of steep hike in food prices.

Very often, food producers are faced with some non-natural obstacles if not enemies, that reduce their incentives to expand food production. The natural obstacles are of course those strong typhoons or prolonged drought or pest attack, other natural calamities that can wipe out potential harvests. Non-natural obstacles are man-made. These are the thieves and robbers, lazy neighbors and friends who always ask for free food, cartelized traders and wholesalers who depress farm prices, and the government food bureaucracy.

Smart food producers and traders can find ways to control or lessen the damage caused by robbers, lazy neighbors, and cartelized wholesalers. But confronting the food bureaucrats in government is difficult. Examples are bureaucrats from the Agriculture and Trade Departments who are quick to declare “price control” of those commodities whose prices have drastically increased because supply has suddenly dropped due to natural obstacles perhaps, or demand has suddenly shot up due to special events like a big fiesta or change in taste and preference.

Another group of food bureaucrats are those from the Agrarian Reform department. Some of their guys are on the prowl watching who are the dynamic and successful food producers with medium- or large-size agricultural lands, perceived to have “weak” political connection, and come up to them and tell them that their land will soon be for distribution to their farm workers. It has been noted by many local economists and agri-business observers that the endless, no-timetable agrarian reform, is among the biggest hindrances and disincentives for agricultural investment and efficient corporate agri-business endeavors.

Of course the silent but big hindrance to more food production, even if they are not directly engaged in the disincentive business, is the thick layer of bureaucracy in the food and non-food agencies. Taxes and fees have to be high and plentiful, partly to finance the salaries and perks of hundreds of thousands of government people working in air-conditioned offices. It is said for instance, that there are some 13,000 reasons why agrarian reform should continue forever – the 13,000 employees and officials of the Department of Agrarian Reform.

So, for long-term solution to steep food price hikes, the volume of food bureaucrats will have to be reduced; and the various taxes and regulatory fees that finance their salaries and offices need to be reduced. Then more people will be encouraged to become actual food producers, traders, processors and other food entrepreneurs, and not just food bureaucrats extracting rents and blood from those who actually produce food.

The political and economic Lent will be expected from the political and food bureaucracy. Then people and average food consumers will not experience the daily Lent of high food prices.

Monday, March 17, 2008

Mad max for oil

I am not in favor of the mad rush to bio-fuels. Those rushing the bio-fuels legislation in Philippine Congress, I heard, have business interests waiting, like they've put up ethanol plants, jatropha processing plants, etc. in some provinces.

The rush to biofuels is part I think, of climate change alarmism. Petroleum is evil, it's responsible for high pollution and climate change; so is humanity's huge demand for petroleum. To slowly kill the evil, people should slowly cut consumption of petrol, until we're using bio-fuels-solar- wind-hydro- etc.

And some countries are now experiencing more deforestation (ie, from forest to non-forest land use), planting more crops as raw materials for biofuels by converting rice land or corn land or forest land.

Let's continue using petroleum, but this time, let the vehicle manufacturers produce more fuel-efficient cars and trucks. Let petrol prices rise if that's where many investors park their money now, but let's cut if not abolish certain taxes on oil, especially excise tax and import tax.

A friend who supports the "oil peaks" theory, like world oil prices reaching $200 a barrel, wrote:
"After the oil peaks, a Mad Max 2 scenario is being envisioned.
A former police officer is now a lone wanderer, travelling through a devasted Australia after a nuclear war looking for the now-priceless fuel of petrol. He lives to survive and is none too pleased when he finds himself the only hope of a small group of honest people running a remote oil refinery. He must protect them from the bike gang that is terrorising them whilst transporting their entire fuel supply to safety."

Oil prices will later reach $200 a barrel, maybe 2 or 5 years from now; no, make it $300 to make it more dramatic. But it's not only oil prices rising these days, also the prices of ethanol, biofuels, rice, wheat, gold, silver, palladium, coffee, cocoa, etc. So, if there's a mad max for oil, will there be also mad max for rice, mad max for gold, mad max for coffee? Mad max is a fiction. If the fiction is to be expanded -- and the fiction writer/s or conspirator/s should do so because oil is not the only important commodity in this planet -- to cover all other important goods reaching "commodity peaks", it will lose its dramatic effect.

Assuming that oil will hit $200 next year or the next, and diesel pump price will reach P80 or P100 a liter, people will still use their cars, especially for family mobility. Why? because governments, Philippine govt especially, have ensured that alternative comfortable transpo will not be made available. Look at those air-con fx and vans. Govt. has ruled that they are "colorum" and illegal and hence, subject to harrassment and extortion, which prevents operators from putting up a more reliable and safe transpo. But it's those air-con vans that exactly approximate driving one's car from house to school or office. Just one ride, you reach your office. Compare that with the present "chop-chop" public transpo: From your village or subdivision, take tricycle; then transfer to jeep or fx; then transfer to MRT/LRT/bus, then jeep or tricycle again to your office or school.

At the end of the day, it's govt. bureaucracy and govt. oil taxation that's a bigger evil than high oil prices.

Monday, March 10, 2008

Taxes on plane tickets

Cebu Pacific is now famous as a budget airline, both for domestic and Asian destinations. It’s fare for Manila-Iloilo, for instance, is only P588 one-way, exclusive of taxes. And it’s the latter that makes plane tickets more expensive. Here’s how (units in Philippine pesos):

Budget Fare 588
Fuel & insurance surcharge 1,220

Sub-total 1,808
VAT 12% 217

Total 2,025

The application of VAT on fuel and insurance surcharge is anomalous because fuel prices are already slapped with at least 3 taxes: import tax (2%), excise tax (P5.60/liter for gasoline) and VAT (12%). Thus, slapping another round of VAT on fuel surcharge is like slapping a new 12% charge on top of the above 3 taxes. That is why plane passengers pay nearly 4x that of an airline’s original plane fare. If government is not greedy, it should have slapped the 12% VAT on the airline’s fare only.

Monday, March 03, 2008

Chinese foreign aid

The current political turmoil in the Philippines is rooted in large-scale robbery and corruption that was already approved but scuttled and later cancelled, involving the President of the Republic and various alleged money-bags -- her husband, her ex-Election Commissioner, her Transportation Secretary, etc. The project was a "national broadband network" (NBN), a foreign loan by the Chinese government to be
implemented by a Chinese company, zte corp.

Out of the US$329 million project cost, around one-half were meant for kickbacks and bribes, the on-going Senate investigations on the NBN deal reveals. There are a number of Chinese foreign aid-funded projects to Phil. government that are tainted or suspected to be tainted with large-scale corruption and robbery. Then there were surfacing articles and stories how the Chinese national oil company was allowed exploration work by the Philippine government in internationally-contested Spratlys islands. The promised Chinese foreign aid to the Philippine government in exchange for this agreement was allegedly $2 billion/year.

The current administration can't give a damn -- if these stories are true, they can get kickbacks by the hundreds of millions of $, and we taxpayers will pay for those loans by the Chinese government in the future. Those are loans, not grants.

Sunday, March 02, 2008

UP and current pol turmoil

In the early part of the Jun Lozada testimony at the Senate, I was envious of La Salle and ATeneo universities, even the UST, for being very early in their high-profile support for the man and the call for truth in the anomalies in NBN and other Gloria-approved foreign loans with the Chinese government. I was asking myself, "ano ginagawa ng mga taga-UP? maghintay ng dagdag na subsidy to be authorized by malacanang and be appropriated by congress?"

Slowly my question was answered. But a report last week said that the whole University Council of 1,000+ teachers, professors, researchers and adminstrators have repeated their call for the Gloria resignation. Mabuhay ang UP!

http://newsinfo. inquirer. net/inquirerhead lines/nation/ view/20080229- 121893/UP- profs-ask- Arroyo-to- quit-schools- go-GMA-free

Meanwhile, the evil of big government continues to rear its head. First, big government allows big opportunities for large-scale robbery and waste. Any high government official/s intent on stealing can choose which of the hundred plus agencies in the executive branch, plus hundred plus government corporations, financial institutions, state universities, etc., plus legislative pork barrel, etc., where they can steal.

Second, once the robbery was done, or even aborted, there are thick layers of bureaucracies to cover the tracks; or thick layers of armed personnel to cover up and threaten if not kill potential witnesses.

And third, perhaps the worse part, big government attracts another set of future robbers who are now in the opposition and calling for "change and reforms" when deep inside, their main intention is also to steal, or secure certain economic and political favors which they won't get if they do not have political power.

Shrinking government that will shrink opportunities for robbery and waste, and to remind people that they need to assume more personal responsibilities for their lives and expect less government responsibilities, is a tall order. Meanwhile, those robbers that have been caught should be penalized now. We cannot allow them to continue until 2010 "because the alternatives are also dirty".