Just before President Ferdinand Marcos, Jr. presented his State of the Nation Address (SONA), I received a text message from my politically irreverent friend, Boom Buencamino. He said: “Even before [Marcos] delivers his SONA, I will already predict that his speech will live up to the expectations of both his supporters and critics.”
That was his usual self — dishing out ridicule and provoking people. But Boom was right. The behavior of Marcos Jr.’s supporters and critics was predictable. The supporters hailed his SONA; the critics disparaged it.
But Boom, comparing Marcos Jr.’s SONA to Rodrigo Duterte’s previous SONAs, was appreciative. “Thank God, ‘I will kill you’ was absent in Marcos’ SONA,” he said.
Marcos Jr.’s SONA likewise surprised the economists I know. Their threshold for a satisfactory SONA was low. In unison, they were relieved that Marcos Jr. didn’t mention the reversal of critical reforms. Prior to SONA and especially during the election campaign, Marcos Jr. said he favored the amendment of the Rice Tariffication Law (RTL) and the suspension of fuel taxes. Those proposals, while having populist appeal, would only increase the prices of food (in case RTL is reversed) and would trigger a fiscal crisis (if fuel taxes were suspended).
With regard to what the SONA contained, the priorities for legislation will, at the very least, do no serious harm. That’s reassuring.
We can dispute, for example, the urgency or appropriateness of the National Government rightsizing program and the mandatory ROTC (Reserve Officers’ Training Corps) program, the favorite bills of President Marcos Jr. and Vice-President Sara Duterte, respectively. But these measures, even if debatable, will not result in causing more harm than good.
Marcos Jr. presented a laundry list for his first SONA. He enumerated a total of 19 bills. In truth, these 19 proposed measures are not on equal footing. For practical reasons, the administration must assign the proper weight and rank each according to preference. This prioritization can then guide Congress in making the timetable and sequencing the bills for deliberation.
Marcos Jr., too, wants to fund many programs and projects that encompass health and nutrition, agriculture, education, digital connectivity, infrastructure, social protection, and others. Some are questionable. Controversial is the idea of building specialty hospitals in places outside Metro Manila (the most applauded in Marcos’ speech!). The risk of serious harm is perhaps manageable, although one can argue that the opportunity cost for such undertakings is huge.
The emphasis given to specialty hospitals suggests a bias of Marcos Jr. to carry on his father’s legacy of establishing the Philippine Heart Center, the National Kidney and Transplant Institute, and the Lung Center. But in light of limited resources, creating more specialty hospitals will deprive much-needed resources for the pillar of universal healthcare coverage, which is primary healthcare. New resources will likewise be needed for pandemic resiliency like the creation of the Virology Institute, the National Disease Prevention Management Authority, and the Medical Reserve Corps.
The main challenge then is how his administration will fund all the programs and projects, including new ones, given a narrowing fiscal space. The fiscal space is further threatened by the hostile global environment characterized by a persistent pandemic, geopolitical conflicts, economic slowdown, higher interest rates, and supply shortages. While the Philippine’s debt remains manageable, further government borrowing can only be credible upon the administration showing it will significantly raise tax revenues.
The Marcos Jr. administration has included important parts of the fiscal consolidation program drafted by the Department of Finance (DoF) during the term of Sonny Dominguez. This is laudable. This shows policy continuity.
In particular, the Marcos Jr. administration will pursue at the outset the remaining packages of the Duterte tax reform, namely real property valuation reform and passive income and financial intermediary taxation. It must be clarified nevertheless that these revenue packages, designed to enhance equity and efficiency, are revenue neutral in the short run.
To augment the fiscal consolidation program, the administration wants to ensure that digital transactions are subject to the value-added tax (VAT). This is welcome because digital services remain under the radar of indirect taxes. However, per the estimate of government, the tax on digital transactions can yield P11.7 billion, an inadequate amount to support the increasing budget for old and new programs.
In this light, the DoF itself — echoed by prominent economists (see for example the columns of Diwa Guinigundo) — has recommended the increase in tax rates for sin products like alcohol, cigarettes, and electronic nicotine devices. The sin taxes are a reliable source of increasing revenues. These taxes also discourage the consumption of harmful goods. And they are efficient taxes, for they internalize the full social costs of products harmful to health.
To summarize, even as Marcos Jr.’s SONA contains the right elements, the essentials that will squarely tackle the binding constraints are lacking. On health, the overarching framework that is primary healthcare needs elaboration. On agriculture, we cannot discern a coherent plan that will provide access to affordable food and that will boost productivity. And on financing growth and development, we expect a bolder strategy to generate much higher revenues.
In closing, I share another friend’s insight. Preferring to remain anonymous, he said: “At best, his agenda struck me as motherhood statements with no clear strategies mentioned. I pray that he will be enlightened by the Holy Spirit to nevertheless do the right things for the people.”
Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms.