Although the RVAT netted P76.9 billion ($1.72 billion) in 2006 and P18.7 billion ($417.41 million) in the first quarter of 2007, it was not enough to make up for revenue losses from trade liberalization, corporate tax evasion and corruption. The government’s tariff reduction program has resulted in import duties as a share of total revenues falling to 19 percent in 2006 from 36 percent in 1993.

Meanwhile, corporate tax evasion may cost the government some P54 billion ($1.20 billion) in lost revenues annually (according to a 1998-2002 survey by the National Tax Research Center) and some P146 billion ($3.26 billion) may have been lost to corruption in the 2007 national budget (based on the 13 percent estimate of the 2001 budget by the United Nations). This means that as much as P200 billion ($4.46 billion) may have been lost this year due to corruption and tax evasion.

In fact, government recently reported that its half-year deficit had already reached P41 billion ($915.18 million) or 65 percent of the year-end target of P63 billion ($1.41 billion). Its only hope now of achieving its deficit target is the privatization of some of the remaining assets like its stakes in San Miguel Corporation and the Manila Electric Company (Meralco) which could be sold by as much as P105 billion ($2.34 billion). But this represents a one-time boost in revenues. Thus, higher taxes on the scale of the RVAT could be inevitable despite government denials.

Unsound fundamentals

The Philippines’ weak productive sectors are ultimately what underpin its financial vulnerability. Its declining agriculture and manufacturing sectors result in chronic trade deficits because the country is dependent on imported inputs and finished products, while having a limited capacity to export genuinely Philippine-made goods. This in turn increases the dependence on foreign sources of financing and capital. The local economy thus becomes unduly sensitive to the fluctuations of global markets.

The country’s problems are essentially due to liberalization policies based on an economic globalization framework. These policies have eroded incomes and destroyed livelihoods, undermined domestic productive sectors and created the conditions for financial crisis. Trade liberalization destroys local agriculture and manufacturing while reducing tariff revenues. Liberal investment regimes have given generous incentives to foreign corporations while reducing the benefits to the domestic economy to nothing.

Macapagal-Arroyo, a staunch believer in so-called free market economics and was instrumental in the country’s membership to the World Trade Organization (WTO), will likely continue her adherence to neoliberal policies which will reinforce the country’s structural inequities and weaknesses.

For example, she will undoubtedly continue to pursue liberalization through the various WTO agreements and free-trade agreements such as the Japan-Philippine Economic Partnership Agreement (JPEPA) and liberalization of the mining sector and privatization of the power generation and transmission sector in order to further encourage foreign investments. And then there is the removal of economic sovereignty provisions in the 1987 Constitution through charter change.

With these policies, it is clear that Macapagal-Arroyo’s legacy will not be a prosperous Philippines but rather an economy that is ripe for another financial and fiscal crisis.(Bulatlat.com)

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