Fiscal crisis

"The Philippines is in a fiscal crisis." Our country’s leadership recently uttered these words in reaction to a recent study done by our brain trust of economists. To some people, this is a new problem; I don’t think so.

Since the Marcos era, the Philippines has been going through one crisis after another. Staving off a debt bomb, a corrupt presidency, a garbage issue, a water crisis or a power crisis. In all or most cases, we Filipinos only start to deal with the issue when the crisis is at our doorstep or if enough "Chicken Little’s" squeak loud enough. (The squeaky wheel gets the grease.) For some reason, we do not plan and prepare.

I commend the current administration for ringing the bell early as the projection of doom is due two to three years from now.

It is typical of our culture to delay decisions and not consider available options until it is too late. A clear example was the garbage crisis a few years ago; several options were available to our decision-makers like pollution-free incinerators, new landfills and new recycling programs. But we decided to extend the status quo and postpone the decision. Methinks the same problem will be rearing its ugly head again soon. In fact I heard we might have a similar disaster in our water pipes. Another disaster that is about to hit us is taxicab fares; the meter fares have not been adjusted since 2001.

In my simple mind, the solution is easy. Increase revenue and reduce cost. (Easier said than done, of course.)

The problem is how to increase tax collection. There are so many hidden agendas that most if not all of our regulators and lawmakers are conflicted. A simple change in the current cap on sin taxes will cost our alcohol and tobacco companies more in taxes. At the end of the day, our lawmakers need to remember that they are here to serve the people not the special interest groups. This is hard to do.

Another approach is to cut taxes. Russia and Ireland and more recently the US have used tax cuts to kick-start the economies out of their respective doldrums. With a growing economy, more tax revenue.

On the spending side, think of a budget as a balloon. If you push on one side the balloon expands on the other side; the key is to reduce the total balloon not just in one area. US budgeters reduced the federal deficit by cutting back on their contribution to the States. This is clearly a case of passing the buck and does not solve the total problem. To reduce cost, one has to look at the total picture and prioritize.

One has to break it down into two columns: the left, the "Got-to-Have" column, and on the right, the "Nice-to-Have" column. "Got-to-Haves" are those items that without which the country will go under like the courts, the police and infrastructure for revenue-generation. The key debate, of course, is when proponents try to justify the Nice-to-Haves as Got-to-Haves.

For example, the infamous P200 million per year pork barrel to which our senators have access. The fact that some senators can do without it is proof to me that this is a "Nice-to-Have," but I am sure some other senators will say they "Got to Have" this. Ah... but you need a strong leadership to get this prioritization done. Spending prioritization is not a popular job; it is a win-lose situation most of the time since it is a question of which sector gets the funds: health care, education, the military or tourism.

Another approach is to privatize everything. Cut government to its core competence of making laws and rules, clear and unambiguous. I take a non-traditional approach; the role of government is just to set a good environment for people to live and work, which means clear and unambiguous laws and rules. The government should not be in the business of owning oil companies, or in the business of running toll roads. The government was successful in staying out of the way of the telecom industry and has created tremendous benefits in terms of tax revenue as well as low prices for the consumers. In fact, why can’t we privatize public schools and leave the Department of Education to making sure the standards are in place? How about roads and highways? If we can create competition for these traditional government roles, we should be better off in terms of tax revenues and lower consumer prices.

Economists and other smart people are mixed on whether this fiscal crisis has an impact on the economy. It has a huge impact because with the fiscal shortfall, the government borrows more and raises interest rates. With increased interest rates, capital funds that would have gone to business investment would now go to investment in Philippine ROP bonds. Why take risks when you can invest in a dollar-denominated paper with a yield of 8.5 percent? Valuable capital will now go to the most inefficient user of this capital – the government.

My Two Cents: A little radical… cut income taxes in half, increase the sin taxes and simplify the rules. Lower taxes, and simpler, clearer rules make it easier to pay taxes than to avoid them. (Note: Evading taxes is criminal.)

Backup protocols

My favorite pitch to my readers and most of my former internal clients when I was CIO (chief information officer) was back up, back up and back up.

So typical for those of us who preach, I did not follow my own advice.

My home PC’s hard disk crashed last week.

I don’t believe a virus attacked me, as I was very conscientious about updating my virus protection every week. It must have been one of those power surges. To think I was scheduling to back up my data only a few days before as I had just bought a new CD burner. But then again planning to back up and actually backing up are two distinct worlds. I lost most of my files, my address book and to be expected, my wife’s data files as well. (I will live, but I’m sure in hot water because I lost my wife’s files.)

Lessons of the day

1. Back up at least once a week to a compact disc and copy the same to a remote site like a Yahoo account.

2. Install power management devices like UPS (uninterruptible power supply) and/or AVRs (automatic voltage regulators).

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Dickson Co is CFO (C is for Cheap) for Dfnn, Intelligent Wave Philippines and HatchAsia.com. For comments or suggestions, e-mail [email protected].