A Looming Fiscal Train Wreck?
By: Zy-za Nadine Suzara, Rupert Mangilit, & Harvey Parafina
By now, everyone has felt the pinch—or punch—from inflation moving up at breakneck speed. From nearly hitting through the roof in January, it surged to 4.5 percent in April, shooting past the higher end of the 2018 target.
Despite claims of having little impact on inflation, critics of the government’s Tax Reform for Acceleration and Inclusion (TRAIN) blame the program for every pinch and punch consumers feel when they gas up, shop for groceries, or pay electric bills—this, even as they were supposed to bring home bigger paychecks due to lower tax cuts. Exorbitant excise taxes imposed on fuel and household essentials further weigh down an economy already made vulnerable by external shocks such as geopolitical tensions in the Middle East, which of late has driven crude oil prices to a three-year high.
In what appears to be a change of heart, senators who earlier gave TRAIN the green light have now been pushing for its suspension in the past few days. It did not sit well with Finance Sec. Sonny Dominguez, who, on May 15, gave a stern warning. Suspending the tax reform program, he said, would slow down Build Build Build, the government’s ambitious take on reversing decades-old neglect of public infrastructure. It would also “possibly negatively affect the government’s ability to fund the free tuition program, as well as increase in salaries of the police and the military,” Dominguez added.
In the months they were selling TRAIN to consumers, President Duterte’s economic managers made no promise of higher pay for uniformed personnel, nor easing the burden of students entering College. But from what Sec. Dominguez said, is the government now making competing priorities out of personnel salaries, tertiary education, and infrastructure?
Setting the stage for what appears to be a cockfight among budget priorities is nothing new under this Administration. Dominguez’ statement calls to mind a sorry tale that involved the budgets for basic and tertiary education.
On the surface, it was a move that appeared to be a display of solid political will. Amid unfiltered opposition from his economic managers, President Duterte signed a law on August 3, 2017 mandating free education across state-run colleges, universities, and technical-vocational schools.
Progressive party list lawmaker Antonio Tinio was among the earliest to express elation at the passage of Republic Act (RA) 10931 or the Universal Access to Quality Tertiary Education Act. Rightfully so, considering the measure’s intention to finally accommodate a long-standing call premised upon the view that access to education is a basic right.
The plot twist that would later unfold was the whole education sector itself would suffer as a result.
Budget Secretary Benjamin Diokno made this clear from the start: “budget cuts here and there would have to be made to accommodate tuition subsidies. Long before its passage, he argued against the scheme, saying that, without a strategy for sustainability such as adopting merit-based criteria for beneficiaries, the initiative could lead to a fiscal disaster that would deny even more students of obtaining a college or vocational diploma than when no policy of that sort was in place.
But a few days after, House Appropriations Committee head Karlo Nograles responded quite confidently that “there is plenty of room to tweak and adjust.” Indeed, at the end of the Bicameral budget hearings, the Legislature made room for subsidies—amounting to P40 billion—and lodged them eventually in the budgets of the Commission on Higher Education (CHED) and State Colleges and Universities (SUCs).
The massive stream of subsidies for college students seemed, in the words of political economist James True, an avalanche, or a drastic upswing in funding, for education.
But a closer look into the funds for education and the most part of social services reveals otherwise.
In fact, the 2018 National Budget, despite growing 12 percent from 2017’s, does not reflect any major policy shift. Compared to infrastructure allocations under the Departments of Transportation (DOTr), and Public Works and Highways (DPWH), and budgets for Defense, budgets for most other departments only grew by increments—minimal top-ups for inflationary or technical adjustments.
Compared to increments, avalanches demonstrate major shifts in priorities. After all, a major reform requires an amount that matches the scale and extent of ambition. Such explains why social services saw rapid and sustained growth between 2010 and 2016 thanks to an expanded conditional cash transfer program, free insurance for indigent patients, and closure of classroom and teacher gaps and a transition to the 12-year global standard for basic schooling.
With a fresh set of global targets to achieve to improve human and economic well-being under the Sustainable Development Goals, and with 21.6 percent of Filipinos still earning below livable incomes, the government faces a tall order. But unlike in previous years, the 2018 Budget is wanting in new social service initiatives for rollout, as evidenced by the figures.
The Social Welfare budget grew by a mere 10.5 percent; in the previous seven years, its growth rate averaged 40 percent. The Health budget grew by only 13 percent despite growing an average of 27 percent in the same period. The DepEd budget, meanwhile, saw its lowest growth in the last eight years this 2018, at less than 2 percent. Much worse, with the Php 40 billion funding for college tuition came a Php 42 billion decrease for DepEd between the proposed budget level and the Bicameral level.
It did not help that a citizen’s primer on the 2018 Budget made it appear that DepEd remains the top recipient of public funds. It did so by adding the budgets of CHED and Technical Education and Skills Development Administration (TESDA) into DepEd’s total budget—something not traditionally done, if at all, since the mandate of these two agencies do not fall within the ambit of basic education. Taking CHED and TESDA out of the equation, it only comes second to DPWH in terms of total allocation—something that never happened at least in the last decade.
To date, the Education department remains mum about which programs were downsized or put in the back burner due to budget cuts. Meantime, families of disadvantaged youth, who were supposed to gain from free College tuition, still wound up pulling their belts a notch tighter due to higher taxes imposed on goods they have no choice but to buy. It does not help that the poorest among them are the least to benefit even with unconditional transfers in place. Middle class families, while getting the most out of TRAIN in paper, nonetheless suffer the same plight.
Now that the euphoria from free tuition has long subsided, and the entire 2018 Budget is out for scrutiny, a few alarming things have become pronounced—economic and budget policies are disjointed, populist programs are hastily planned and funded at the expense of clashing with other priorities, and inflation only takes away what the government gives the people on their one hand. Some change has come, but a growing number of people are feeling shortchanged.
Worse, what comes at the expense of a sounder, more pro-development budgeting is a bigger trove of cash at the disposal of the President and his partners in what appears to be an all-out war against human rights and rule of law. More of these on the second part of the blog.
This blog is the first of a three-part series that seeks to contextualize and expound on the findings of Increments and Avalanches: Unpacking the 2018 Budget of the Duterte Administration, a working paper that dissects the policy priorities of the government under President Rodrigo Duterte’s watch, as revealed by figures in the National Budget. Click here to read the paper in full. The visuals and infographics used in this blog were crafted by graphic artist Emmie Albangco.