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Tuesday, October 27, 2020

Bayanihan 2: Too small, hinders health and recovery

The beggarly Bayanihan 2 bill preferred by the economic managers and imposed on Congress is much too small for the magnitude of the crisis facing the country. It makes health and recovery years away and farther than ever.

The Bayanihan 2 bill passed by the bicameral conference committee and ratified by the Senate is worth just Php165.5 billion. Of this, Php25.5 billion is even just a “standby fund”, only available once “additional funds are generated”.

Every centavo spent of Bayanihan 2 is welcome. There’s no doubt about that because the extraordinary scale of the health and economic crisis demands extraordinary spending. The problem is that the Duterte administration is spending far too little for the problem at hand.

Looked at in aggregate, Bayanihan 2 pales compared to the as much as Php1.9 trillion lost in gross domestic product (GDP) in 2020 because of the pandemic. This includes not just what is lost from the economy contracting but from what it should have been if it kept on growing.

But the shortfall is even clearer looking at the details. Bayanihan 2 allots Php30.5 billion for health-related responses spanning tracing, treatment, support for health workers, health facilities and pandemic research.

Yet the health infrastructure spending doesn’t even make up for huge budget cuts here since the start of the Duterte administration. There’s Php10 billion budget for testing but this is in the standby fund and made contingent on finding new funds, which the economic managers are so sparing in doing.

The provision for Php5,000-8,000 in emergency cash subsidies is necessary but only Php13 billion is allotted for this. This is paltry compared to how the lockdown-induced recession has already displaced anywhere from 20.4 million to as much as 27 million of the labor force (43-57% of the labor force), according to IBON’s estimates.

Bayanihan 2 will help just 1.6-2.6 million beneficiaries at most and, even then, not by much. At Php5,000-8,000 per household, it will only give the equivalent of a token Php37-60 per person per day for a month. This paucity is little changed even if the Php6 billion budget for social welfare department programs and Php820 million for overseas Filipinos is added.

The budget for the transport programs includes Php5.6 billion for displaced public utility vehicle (PUV) drivers especially jeepney drivers. But this isn’t even enough to compensate them for the now five months that the government has kept them out of work and driven into poverty.

Much more substantial cash assistance is needed to improve household welfare in these difficult times. This also has macroeconomic benefit of boosting aggregate demand and stimulating a virtuous cycle of spending and production. Economic activity is impossible and production support will be futile if too many are jobless and have nothing to spend.

There’s Php77.1 billion for production and enterprise support. This includes Php24 billion for agriculture which gives the sector the emphasis it is due. There is also Php39.5 billion for government financial institutions (GFIs) to support lending, Php9.5 billion for transport programs, and Php4.1 billion for tourism programs.

The total amount is however only going to help a few of the 997,900 micro, small and medium enterprises in the country employing 5.7 million workers – and probably none of the hundreds of thousands more informal and unregistered enterprises. If available, the additional Php15.5 billion under the standby fund for low interest Land Bank of the Philippines (LBP) and Development Bank of the Philippines (DBP) loans will help but still not be enough.

The Php8.9 billion for education is critical to keep the youth educated and eventually productive. But the budget is a mere fraction of the tens of billions of pesos needed to ensure that schools are safe and have internet connectivity, and to help parents keep their children in school. There are some 70,000 elementary and secondary schools and around 2,000 higher education institutions in the country.

The remaining Php3.7 billion for local government units (LGUs) and national athletes and coaches will also certainly help the recipients but, measured against the scale of the intervention needed across the breadth of the economy, are almost tokenism.

The economy will rebound somehow but this will be slight and Bayanihan 2 is too small to hasten real recovery. The government is the only entity in a position to implement the huge stimulus program the economy needs and there needs to be more boldness to spend and, especially, to raise money for this.

The Duterte administration can raise the money needed if it really wanted to. In the short-term it can realign from infrastructure projects and at least some of the debt servicing to development agencies and friendly official creditors.

Big-ticket infrastructure projects that are no longer economically or financially viable, or are too import- or capital- intensive, can be put off or shelved. Debt service to development banks and the like can be restructured on the argument that there are more pressing uses for scarce government funds.

The government can actually wield its creditworthiness to borrow if needed on favorable terms. The best way to pay for any additional debt is not from more consumption taxes on the people but from higher income and wealth taxes on the country’s super-rich. The huge accumulated wealth concentrated in the few is more than enough for all the stimulus the country needs and can be the foundation of a credible medium-term fiscal plan.

A much more progressive tax system with higher direct taxes is the most rational and sustainable source of government revenues. This most of all means a wealth tax on the country’s super-rich (raising Php240 billion annually from just the 50 richest Filipinos), higher personal income taxes on the richest 2.5% of families (Php130 billion), and a two-tiered corporate income tax scheme (Php70 billion).

The economic managers’ obsession with creditworthiness is the binding constraint to fighting COVID-19 and the economic misery in its wake. This self-imposed fiscal straitjacket is misguided. Spending less, not spending more, is keeping the country off the path to health and recovery.

The country is grossly short-changed by Bayanihan 2. It’s all the people are getting not because it’s all the government can afford but rather because it’s all the Duterte administration wants to give.

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