Reviewing the EVAT — and other government decisions

Not surprisingly, the ballooning national inflation has revived the debates on junking the expanded VAT, which was passed into law in 2005. Of course, depending on which side you are on, the EVAT could be seen either as the reason why the Philippine economy is still afloat, or the reason for the misery of more and more Filipinos. I would say that it has been a bitter pill that did both.

Considering the even harder times, a review is definitely in order. It is also a hot topic that can affect any politician’s plans for 2010. So the public will need to be careful about the different sound bites and press releases of these politicians. It is, after all, easy to be deceived by mellifluous words and populist promises.

The junking of the EVAT would definitely bring some relief to consumers in the short term. I’m not an economist, but I wonder if removing it will be the best long term solution. Will its junking now even have an effect on inflation, which is at a 14-year high?

The bigger question, of course is: where will government get its revenue? After all, the EVAT helped prevent an Argentina-style crisis in the Philippines. Insiders from the banking industry say that the Philippines came very close to an economic collapse in mid-2006. Where will government get funds for much needed infrastructure and basic social services? At the end of the day, it is the poor who would just suffer the most in the end, if the EVAT were carelessly removed.

Such suggestions to remove the EVAT are easy and truly earn pogi points. But I have yet to good alternatives should it be removed. Only one, and that is Sen. Mar Roxas’ Food-For-Infrastructure program, which could help in the delivery of infrastructure programs, even if government has less revenue.

What is truly needed now is a review on tax and custom collections, implementation of the lateral attrition law, increasing the supply of agricultural products and other basic commodities, faster construction of farm-to-market roads, and the fast-tracking of alternative energy programs and mass transit — all of these would help bring prices down. The problem is, implementing these are time consuming, and we don’t exactly have the luxury of time on our side. The government will need to work double — triple — time to implement and finish its projects. One good project to fast-track is the connection between the LRT and the MRT. Malacanang promises that this project will be done only in 12 months.

The government should also not overlook the quick depreciation of the Peso as of late. This will definitely affect all government’s efforts to curb inflation. For one, I remember President Arroyo telling us at a Malacañang cocktail party last December that while the government dodged all temptation intervene in the peso-dollar exchange rate, it had, among many other things, opted to limit government borrowing in US dollars, to arrest the steep appreciation of the peso. This was, of course, done to protect the export sector. But now that the Peso is back to almost-46, did government make the right decision?

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