Tough choices to make

Idistinctly remember that the first person I sought to explain why the VAT was being broadened was Men Sta. Ana, one of the leaders of the Freedom from Debt Coalition. It was critical for the then militant group to appreciate that the reform was an equity measure. With the exclusion of services from the VAT, its burden bore heavily on the poor rather than the wealthy. The consumers of hotels, restaurants, and services of contractors, realtors, and other professionals are mostly the affluent. Men clearly understood the importance of the measure and threw his support behind it. A critical battle in building a constituency for an expanded VAT was won.

The tax reform program of the administration is not that easy to defend. It presents itself as pro-poor. And yet, it is a mixture of pro-rich, pro-poor, and anti-poor measures. It lowers the tax on inter-generational transfer of wealth from 20% to 6%. And then it imposes a tax on soft drinks, based on volume instead of sugar content. It raises the excise tax on petroleum products, a needed measure that would raise the tax effort, but would surely be borne by transport and users of petroleum products, e.g. consumers of electricity and manufactured products.

The tax reform program is up for consideration by the Senate after it has been watered down by the House. Already, the Senators, particularly the Chairman of the Ways and Means, Senator Sonny Angara, are under tremendous pressure. The President in his SONA took a swipe at the Senator and asked why he was not clapping when the tax program was mentioned. "Bantay ka lang sa eleksyon (Watch out or keep guard during the elections).” More recently, the Secretary of Finance warned that he would recommend a veto if the program is not passed in full. These overtures ignore the science and art of fiscal politics. They are a marked departure from the practice of shared governance where every shareholder has an equal right to contribute to the formulation of public policies. It as if the Executive Branch has a monopoly of good intentions and bright ideas.

We have to appreciate that tax policies are formulated by legislators who are answerable to the people who elected them. Voters are utility maximizing individuals who choose candidates who will represent their interest. They elect candidates whose preferences are closest to theirs. It is therefore normal for senators to stay faithful to their representation to ensure their political survival.

This function is much difficult for Senators. Unlike congressmen, the interests of their constituents are not parochial and contained. Senators are under the scrutiny of every businessmen, every taxpayer, every senior citizen, every girl scout, and every consumer. And the eyes of the voters will not be on the sum total of the tax program but on specific measures that they either hate or love. Thus, a senior citizen, or a member of a cooperative will care little if the program will finance more bridges, and more houses. All that he will remember is that this Senator took away his VAT exemption.

It would be an over-simplification to dismiss all these permutations as politicking. The proponent of how choices are made by the public, Prof. Buchanan, has received the Nobel prize for organizing his theories into a science and enabling us to understand how public decisions are made.

By accepting that we all have vested interest of our own and are motivated to push for measures to satisfy our own needs and wants, our expectations will be more balanced and reasonable.

The senators have to navigate through competing interests and pressures. Everybody wants his/her taxes lowered but government needs revenues. The challenge of the senators is to balance the needs of the administration without losing the trust of the people who elected them.

The decision-making process of the Senate is much more complicated than that of a bureaucrat. The latter is answerable to the President who appointed him. In contrast, the senators are poised not only to to meet the needs of the administration but they must maintain the trust of their constituents. What is worse is that their constituents are diverse and with conflicting interests.

I went through a similar experience when a very much watered down version of the Tax Reform Program was enacted by Congress in 1996. I was convinced that we should work for a veto. Senator Enrile who was then the chair counseled me by saying that reforms are carried out brick by brick and not through a big bang. "Rome wasn't built in a day."

mguevara@synergeia.org.ph