VOTE counting machines that will be used in the May 9 national and local polls are checked by workers at the Commission on Elections (Comelec) warehouse in Sta. Rosa, Laguna on March 14. Newly-appointed Comelec Chairman Saidamen Balt Pangarungan and Commissioner George Erwin M. Garcia visited the facility on Monday.
SMALL and medium enterprises (SMEs) are expected to find it difficult to meet wage demands being made as prices rise, because they have yet to recover from the coronavirus disease 2019 (COVID-19) pandemic, a Palace adviser said.
Presidential Adviser for Entrepreneurship Jose Ma. A. Concepcion III said at a Laging Handa briefing on Monday that small and medium businesses will be unable to raise wages to the extent being demanded by labor leaders.
“’Yung mas malaking korporasyon, mas may kaya pero ’yung small to medium enterprises, iyon ang mahihirapan kasi sila talaga ang tinamaan (larger corporations will be more able to raise wages, but SMEs will find it difficult because they took much of the hit from the pandemic,” Mr. Concepcion said.
Mr. Concepcion said the tourism sector in particular will be challenged in meeting any wage demands as they are still recouping their losses.
“Kababangon lang niyan. Halos two years na walang negosyo. So, bumabangon pa lang sila. We have to give them time. At this point, hindi pa bumabalik ’yung tourism (industry) natin (They have just made it through the crisis, when they endured nearly two years with no business. They are still recovering from the pandemic. We have to give them time. At this point, tourism has not yet recovered)” Mr. Concepcion said.
The Trade Union Congress of the Philippines and Partido Manggagawa have called for wage hikes to address rising fuel and commodities prices.
According to the National Wages and Productivity Commission, the daily minimum wage in Metro Manila is between P500 and P537.
Mr. Concepcion called for more talks between the government and the private sector on wage hike proposals.
“Hindi pa rin tayo sigurado rito sa mga presyo kasi biglaan ang pagtaas dahil sa (Russia-Ukraine) conflict. Kung mawala ’yung conflict, then bababa lahat ng commodities. (We are not sure on prices since there was sudden increase due to the Russia-Ukraine conflict). If the conflict is resolved, then commodity prices may go down. This might be a temporary situation. I think the government and the private sector will need to have more discussions here,” he added. — Revin Mikhael D. Ochave
NOMURA Global Markets Research said it downgraded its growth forecast for the Philippines to 6.3% from 6.8% due to the expected impact of inflation caused by the Russian invasion of Ukraine.
The projection was made in a note issued by analysts Sonal Varma, Ting Lu, Euben Paracuelles, and Jeong Woo Park.
The official government target for 2022 growth is 7-9%.
“In Asia, India, Thailand and the Philippines are the biggest losers, while Indonesia would be relative beneficiaries from higher commodity prices,” the report said.
Amid surging oil prices, Nomura raised its inflation projection for the Philippines this year to 4.6% from 2.9% previously. If realized, this will be higher than the 3.7% estimate of the Bangko Sentral ng Pilipinas (BSP) and beyond its 2-4% target band.
For now, Nomura said base effect from the high food prices last year is still keeping inflation muted.
“Surging inflation is also likely to dampen consumer spending when the unemployment rate is still high,” it said.
Headline inflation was at 3% for a second straight month in February. However, central bank Governor Benjamin E. Diokno has warned that rising oil prices could push inflation beyond the target band by the second quarter, before slowing in the second half of the year.
Nomura warned that the country’s high dependence on fuel imports could have an immediate pass-through impact on consumers and widen the current-account deficit.
Relatively low vaccination rates and the possibility of further outbreaks due to election-related activities could also impede growth by delaying the economy’s full reopening, it added.
The Department of Health tallied full vaccinations at over 63 million as of March 9. The Johns Hopkins University vaccine tracker estimates the fully vaccinated rate at 58.36% of the population.
The government hopes to fully vaccinate 77 million people by the end of March.
Nomura said it expects the central bank to continue focusing on growth and only start increasing rates by 25 basis points in the fourth quarter of 2021.
The BSP last week said it will continue to prioritize supporting economic growth, but will be ready to move in case there is need to respond to second-round effects of inflation manifested through fare hikes or wage increases.
Last year, the economy rebounded with a 5.6% growth following a record 9.6% contraction, which was the worst in Southeast Asia. — Luz Wendy T. Noble
THE Bureau of Internal Revenue (BIR) said it collected P44.6 billion worth of tax from online content creators and retail sales by the end of 2021, BIR Assistant Commissioner Larry M. Barcelo said in a presentation at the House Ways and Means Committee hearing.
“As early as 2013, the BIR issued a Revenue Memorandum Circular reiterating the taxpayer’s obligations for online business transactions,” Mr. Barcelo, who heads the bureau’s legal service, said.
The obligations include “registration, keeping the books of account, invoices, receipts, filing of tax returns and payment of taxes,” he added.
Other memorandum circulars outlined the rules for the registration of online businesses and the filing and paying of taxes, he added.
Mr. Barcelo said 43 tax treaties currently govern the tax treatment of the Philippine operations of non-resident foreign corporations.
During the hearing, House Ways and Means Chairman and Albay Rep. Jose Ma. Clemente S. Salceda pushed the BIR to offer an online portal to allow overseas Filipino workers (OFWs) to more easily apply for Taxpayer Identification Number (TIN).
“The committee would like to seek the expedition or the action of the BIR on the online portal for the OFW TIN application and issuance,” Mr. Salceda said. “Even the PSA can issue a birth certificate online. That’s even more critical (than the TIN).”
“We will consider the digital portal for the OFWs. It will be part of our digital transformation program,” Mr. Barcelo said. — Jaspearl Emerald G. Tan
COMPLAINTS against online businesses have declined after the easing of quarantine restrictions, which allowed sellers to normalize their operations, the Department of Trade and Industry (DTI) said.
Trade Undersecretary Ruth B. Castelo said in a virtual briefing on Monday that the DTI received around 12,000 complaints involving online transactions in 2021, lower than the 16,000 complaints logged in 2020.
In the first two months of 2022, the DTI received 2,059 complaints involving online transactions, she said.
Ms. Castelo said the top three online platforms were Lazada, Shopee, and Zalora.
“In 2020, the online platforms couldn’t deliver because of the lockdowns. They didn’t have personnel going to work. The consumer complaints really rose in 2020. For 2021, the complaints declined. The online platforms were able to normalize operations especially because we also considered, in DTI, that online platforms are also selling essential goods. They also sell food, clothing, and grocery items,” Ms. Castelo said.
Ms. Castelo said more employees of online platforms returned to work, which allowed for the faster resolution of complaints. She added that consumers have also grown more knowledgeable about e-commerce since the start of the pandemic.
“We hope the number of complaints goes down in 2022 from 12,000 last year. We will continue to provide consumer education,” Ms. Castelo said.
The DTI also warned online businesses against selling prohibited and unlicensed products over digital platforms.
Ms. Castelo said Joint Administrative Order (JAO) No. 22-01 was signed on March 4, directing online platforms to verify whether products sold by their merchants are licensed and regulated.
Under the JAO, all digital platforms are provided a three-day “safe harbor” period, during which they may take down an online post that has been flagged for violating the law.
“In case of a prima facie violation of any pertinent laws or regulations committed in an online post by the online seller or merchant, e-retailer, e-commerce platform, e-marketplace, and the like, the concerned authorized agency shall issue a notice giving the violator a maximum period of three calendar days from receipt thereof, within which to take down such post, without prejudice to the filing of appropriate administrative actions all violators,” the JAO said.
“Failure to enact, or strictly enforce, such internal mechanisms or rules shall be construed as an intentional and overt act that shall aggravate the offense charged,” it added.
Ms. Castelo said laws applicable to brick-and-mortar stores also cover online businesses.
“A price tag required to be pasted on items you buy in stores are also required to be pasted on the products that you buy online or through published price list. Buyers no longer have to ask for the price from the seller, who will almost always say that a private message is sent. This is a clear violation of the Price Tag law,” Ms. Castelo said.
Signatories to the JAO include the DTI, the Departments of Health (DoH), Agriculture (DA), Environment and Natural Resources (DENR), the Intellectual Property Office of the Philippines (IPOPHL), and the National Privacy Commission (NPC). — Revin Mikhael D. Ochave
Nothing lasts forever. Things can change for better or for worse. Right now various entities enjoying tax incentives might be left wondering about the state of Philippine tax law. Among the questions taxpayers may be asking is — Can we still enjoy what we are enjoying now?
One such change was heralded by Bureau of Internal Revenue (BIR) Revenue Memorandum Circular (RMC) No. 024-2022, particularly regarding the application of the cross-border doctrine for value-added tax (VAT) purposes.
CROSS-BORDER DOCTRINE
The Supreme Court has recognized that the sale and consumption of goods or services within a given freeport or ecozone shall be deemed constructive exportation and technical importation. This is because freeports and ecozones, as provided under the law, are to be managed as separate customs territories from the rest of the Philippines and, thus, for tax purposes, are effectively considered foreign territory.
The cross-border doctrine is rooted in the Omnibus Investments Code of 1987, which recognizes the existence of “constructive exportation,” wherein sales to export processing zones are also considered constructive importation. The cross-border doctrine mandates that no VAT be imposed to form part of the cost of the goods destined for consumption outside the territorial border of the taxing authority, which includes the constructive exportation pertaining to sales to export processing zones.
BASED ON RMC 024-2022
In RMC 24-2022, the cross-border doctrine was rendered ineffectual as applied to freeports and ecozones for VAT purposes. Only those goods and services that are directly and exclusively used in the registered project or activity of Registered Business Enterprises (RBEs) qualify as VAT zero-rated on local purchases.
Under the RMC, direct and exclusive use in the registered project or activity refers to those expenditures directly attributable to the registered project or activity without which the registered project or activity cannot be carried out. This excludes purchases used for administrative purposes. Activities for administrative purposes, including legal, accounting, and other similar services, are not considered expenses directly attributable to, and exclusively used in the registered project or activity. If goods and services used in both the registered activity and for administrative purposes cannot be determined, then the purchase of goods and services is subject to 12% VAT.
An example provided under RMC 24-2022 is the telecommunication expenses of registered enterprises in IT/BPO services, which may be treated as expenses covered by VAT zero-rating since they are directly and exclusively incurred due to the nature of the industry. However, if the telecommunication expense is for administration purposes, it will be subject to 12% VAT.
Since only goods and services that are directly and exclusively used in the registered project or activity are allowed for zero-rating, not all goods coming into, or services rendered within freeports and ecozones may be accorded VAT zero-rating. In addition, the sale of goods or services to a registered domestic market enterprise is subject to 12% VAT.
Mere registration as an RBE will not automatically make its local purchases of goods and services qualify for VAT zero-rating following the cross-border doctrine. Thus, ecozone entities, such as RBEs, should classify their purchases from local suppliers, or determine whether the transaction is directly and exclusively used in the registered project or activity.
WHAT CAN TAXPAYERS DO?
In the meantime, it is highly recommended that taxpayers, especially RBEs, read RMC 024-2022 in its entirety. By understanding the RMC, the taxpayers can anticipate how the BIR would react and proceed. More importantly, taxpayers must take special note of the transitory provisions under the RMC.
In the discussion of the transitory provisions, for example, RMC 024-2022 took note of the retroactivity of Revenue Regulations (RR) 21-2021. Under RR 21-2021, taxpayers will be able to reclassify their sales to registered export enterprises, from being subject to 12% VAT to being considered zero-rated by virtue of the retroactive application of the issuance. The BIR considered the retroactivity to be justified as it is beneficial to the taxpayers affected.
Another clarification discussed by RMC 024-2022 is the treatment of VAT which had already been billed and/or collected that transpired during the effectivity of RR 09-2021, which is affected by the retroactivity of RR 21-2021. RMC 024-2022 holds that the seller can still opt to declare the sales to registered export enterprises as subject to 12% VAT. In this case, the VAT-registered buyer may utilize the passed-on VAT as input tax which may be credited against the output tax, or if the buyer is engaged in VAT zero-rated sales, the same can be recovered through VAT refund. If the buyer is not VAT-registered, then the VAT paid may be claimed as part of the cost of sales or expenses.
The seller can also revert the transaction from being subject to 12% VAT to VAT zero-rated by amending the filed VAT return after reimbursing/returning the VAT paid by the registered export enterprise buyer. If there is a resulting overpayment due to unutilized input tax credits, it may be recovered through VAT refund inasmuch as the corresponding sale is reverted to VAT zero-rated.
The above are just some of the rules to be observed in the application of RMC 024-2022.
While time-tested rules and procedures, such as the cross-border doctrine, are affected by RMC 024-2022, it is worth noting again that nothing is permanent. Given the tumultuous situation everyone is facing due to the two-year pandemic, the increase in gas prices, or even the threat of a nuclear war between global superpowers, a change in tax rules and principles may seem minor by comparison, but make no mistake, such a change is undoubtedly significant for many businesses.
Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
John Patrick L. Paumig is a senior associate from the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.
SEVEN-TIME Super Bowl winning quarterback Tom Brady abruptly said he would end his brief retirement on Sunday, announcing his return to the Tampa Bay Buccaneers for a 23rd National Football League (NFL) season just six weeks after hanging up his cleats.
Brady, who had established himself as one of the greatest players in league history, stunned the sporting world with the unexpected about face.
“These past two months, I’ve realized my place is still on the field and not in the stands,” said Brady on his official Twitter account. “That time will come. But it’s not now. I love my teammates, and I love my supportive family.
“They make it all possible. I’m coming back for my 23rd season in Tampa. Unfinished business LFG.”
Shortly after Brady made his announcement the Buccaneers reacted with their own message on Twitter: “He’s baaackkkk,” the team said with a video of the quarterback taking the field.
The NFL echoed that sentiment, tweeting a photo of a smiling Brady with the caption “He’s back.”
Tampa head coach Bruce Arians said he was “ecstatic” about the development.
“As Tom said, his place right now is on the football field,” Arians said. “He is still playing at a championship level and was as productive as anyone in the league last season.”
Perhaps Brady was inspired to make a comeback after watching another sporting great, Cristiano Ronaldo, score a hat trick in Manchester United’s 3-2 Premier League win on Saturday over Tottenham Hotspur at Old Trafford.
Brady walked onto the pitch to greet 37-year-old Ronaldo after the match, and a day later announced his return to the gridiron.
The 44-year-old Brady spent 20 seasons with the New England Patriots, winning six Super Bowls before moving to Tampa Bay and leading the Bucs to a championship in his first season with the team. — Reuters
INDIA’S Anirban Lahibi held a one-shot lead at The Players Championship when play was halted due to darkness in the middle of the third round at TPC Sawgrass in Ponte Vedra Beach, FL. on Sunday.
Lahiri is 9-under-par for the tournament through 11 holes in his third round. He leads by one over Americans Tom Hoge and Harold Varner, who both completed nine holes before the horn sounded on Sunday evening.
Hoge was tied for the lead at 7 under when the second round was finally completed mid-day on Sunday. Co-leader Sam Burns finished the day still at 7 under and tied for fourth with England’s Paul Casey and Columbia’s Sebastian Munoz.
The third round will resume at 8 a.m. ET on Monday, with the final round scheduled to begin at 1 p.m. Tournament organizers hope to complete the final around 6:30 p.m.
Lahiri will sleep on the lead on Sunday night as he attempts to capture the biggest victory of his career.
The 34-year-old has 18 worldwide victories to date, but his biggest result in a marquee event was a tie for fifth at the 2015 Professional Golfers’ Association (PGA) Championship. Lahiri has yet to win the PGA Tour, and he entered this week ranked 322nd in the world.
“I think the nature of what we do, it could be — it’s unpredictable,” he said. “You grind away, you keep chipping away, you keep working on your game, and when it clicks, it clicks. It could be this week, it could be next week. As long as it happens, and that’s the belief you’ve got to have, and that’s the commitment you’ve got to have.
“I’m just happy. When you are in that state of mind, you usually play well, and that’s what’s happening.”
Lahiri first reached 9 under with a birdie on the ninth hole of his third round, making the turn in 4-under 31. He bogeyed the 10th hole but rebounded to birdie the par-5 11th before play was suspended.
When play resumes on Monday morning, there will be 17 players within four shots of the lead. That includes former Open champion Shane Lowry, who sits at 5 under thanks in part to a hole-in-one on the iconic 17th hole during his second round.
Defending champion Justin Thomas is 4 under through 11 holes and has 25 remaining to make a charge as he attempts to become the first player to successfully defend at the Players.
World No. 1 Jon Rahm is also through 11 holes in his third round but is seven shots off the pace at 2-under along with third-ranked Viktor Hovland. No. 2 Collin Morikawa missed the cut.
Scottie Scheffler and Rory McIlroy were among those who had to wait until Sunday afternoon to find out if they would make the 36-hole cut. Both squeeked in after Scott Piercy quadruple bogeyed the 17th hole after putting two balls in the water and then bogeyed No. 18 to fall to 3 over.
“I had to ask (caddie Travis Perkins) what day it was today,” Burns said after the second round was complete. “I really wasn’t even sure. It’s strange going from Thursday and not playing again until Sunday.”
Hoge is trying to win for the second time this year after claiming his maiden PGA Tour victory at the AT&T Pebble Beach Pro-Am last month.
“You know what, I think we definitely got the good end of the draw. That’s golf, I guess,” Hoge said about those who avoided playing on Saturday. “It was certainly difficult out there still this morning. I felt there were a lot of challenging golf shots out there.” — Reuters
DEVIN Booker poured 12 of his team-high 30 points into a 48-point, first-quarter explosion on Sunday night that sent the host Phoenix Suns to a 140-111 victory over the Los Angeles Lakers in a matchup of possible first-round playoff opponents.
Deandre Ayton also contributed 10 points to the first-quarter flurry that put the Lakers in a 26-point hole and paved the way to a seventh loss in their last nine games despite a game-high 31 points from LeBron James.
Ayton finished with 23 points for the Suns, who successfully rebounded from a 117-112 home loss to the Toronto Raptors on Friday.
In beating the Lakers for the third straight time this season by a total of 57 points, the Suns went from a 6-2 deficit to a 16-6 lead behind a pair of Booker 3-pointers.
He added a third three later in the period, turning it into a four-point play when fouled on a 30-footer by Stanley Johnson.
On a night when they shot 56% from the field, the Suns went on to lead by as many as 28 points in the second quarter and 35 in the fourth minute of the final period before both teams emptied the bench.
Booker’s 30-point game was his 21st of the season. He shot 4-for-10 on 3-pointers and also found time for 10 assists, completing his fourth double-double of the year.
Ayton made 11 of his 14 shots and also led all rebounders with 16 for his 22nd double-double.
Mikal Bridges (18 points), Aaron Holiday (12), Jae Crowder (11), Torrey Craig (11) and JaVale McGee (10) also scored in double figures for Phoenix, which rolled up its largest point total of the season.
Cameron Payne aided the cause with a game-high 11 assists to complement nine points.
James went for 31 points and team-highs in rebounds with seven and assists with six. The 30-point game was his 28th of the season.
Carmelo Anthony had 18 points, Russell Westbrook and Malik Monk 13 apiece, and Austin Reaves 10 for the Lakers, who lost despite outscoring the Suns 48-36 on 3-pointers.
James (five) and Anthony (four) combined for nine of the Lakers’ 16 3-pointers.
The 140 points allowed were one fewer than the Lakers’ season-high of 141 in a three-overtime loss to the Sacramento Kings in November. — Reuters
Unless Vladimir Putin’s madness is taken out of the equation, the world is hurtling towards a world war which humanity can’t afford and doesn’t want for all the obvious reasons.
Since communism’s demise in 1991, the West’s and Putin’s struggle for power has placed all the countries under their influence, and those countries caught in between them, at grave risk.
In the past 30 years, many of the former Soviet republics joined the EU and NATO (North Atlantic Treaty Organization) and that increasingly alarmed Russia. Putin views this “encirclement” and “containment” by US-led NATO as a grave threat to its national security and interests. It’s also throwing a monkey wrench in his widely viewed attempt to cobble back together the old Soviet empire and Warsaw Pact to serve as Russia’s buffer zone and security belt.
Ukraine was Russia’s ultimate “red line.”
Ukraine is Europe’s second largest country next to Russia. It is mineral-resource rich and strategically positioned. Mr. Putin repeatedly sought security guarantees from the West that Ukraine would stay neutral, like Finland, to serve as a buffer between the West and Russia. Ukraine has been lobbying for membership in EU and NATO since 2008. Ironically, Ukraine has not been accepted to this day, unable to hurdle certain requirements to merit approval and acceptance.
I suppose Putin decided to step in before the EU and NATO did accept, which would have estopped him from attacking a NATO member country. The flurry of visits to Moscow to keep the dialogue going amounted to nothing when Putin concluded that the West was not interested in providing him with security guarantees. He closed the door on diplomacy, paving the way for Ukraine’s invasion. It’s pretty clear from years of geopolitical observation that when core interests clash, hot conflicts are inevitable.
His rush to war produced instant consequences. It united the people of Ukraine and united a divided Europe. It spurred the US to action — it had been waffling about Ukraine’s application and hesitant in stopping Putin based on its lame statements, until the invasion. Biting sanctions were swiftly applied. Sovereign nations and global businesses stopped dealing with Russia. Financial assets and properties were frozen and embargoed. Oil and gas prices have spiked. Cost of goods and supply chain dislocations are shaking the global economy.
Putin’s invasion hasn’t gone well, forcing him to engage in nuclear terrorism. His forces have attacked three nuclear stations already and occupied two. If they blow up, Europe will be a wasteland. He has become the world’s No. 1 villain. His own people are openly protesting his invasion. Ukraine’s heroic leader, Volodymyr Zelensky, on the other hand, has become the world’s hero. Ukrainian patriotism and heroism have caught the world’s attention.
Tens of thousands are volunteering to join his International Legion. Sympathetic countries are sending arms, munitions, and supplies. Combat aerial vehicles have been destroying major Russian military assets. Mig-29 jet fighters may soon reduce the military imbalance with Russia. Almost 20,000 anti-tank and anti-aircraft missiles and rockets have been delivered, with more on the way. One thing is clear: the peace dividend that flowed from the end of communism in 1991 has ended. War, death, and destruction are back on the table.
Despite available modern technologies to reduce collateral damage through smart and precision weapons, Russian and its surrogate forces are now targeting civilian populations indiscriminately. His scorched earth tactics are meant to bludgeon Ukraine to its knees. If the Russian people themselves don’t stop him, who knows where all this will lead to? Moldova? Georgia? Europe’s overall situation is fast eroding. It’s hurtling toward a larger conflict with more countries being sucked into it. Mankind is facing a potential global economic depression and world war.
Yet, here at home, I see no effort to inform the public of the worsening situation abroad and how it could impact the country in many ways. Government’s vacuity assures us of long-term suffering. We should be hearing from government — national and local — about what we need to focus on and do as one united nation to survive, and how to go about it. So far, it’s been the sound of silence. We’re on our own as government is hung up, as always, on self-serving politics that’s getting in the way of the exceptional governance required for perilous times like we’re in now.
There are valuable lessons from Ukraine that the government can capitalize on to educate and energize the nation. For example, Zelensky’s courageous leadership that is galvanizing his nation and inspiring the world; the Ukrainian’s selfless patriotism, placing national defense and security above personal safety and family considerations; their military’s guts and skill to engage a better-equipped and much stronger foe in combat; total warfare — economic, geopolitical, financial, cyber, information, kinetic; the imperatives for preparedness and self-reliance.
Government is perceived to be divided on Ukraine. Despite one public institution condemning Russia’s invasion of Ukraine by voting for the UN General Assembly resolution, other institutions are calling for neutrality or prefer to remain silent. Yet, they report to the same ultimate power that determines foreign policy, which drives our international relations. The disconnect is obvious and distressing. China is taking note for sure. As Russian Garry Kasparov, former world chess champion, echoes: “Neutrality between good and evil, sides with evil, always.”
My antennas are pointing towards preparations for my family’s survival, safety, and security, including all our kasambahays (house help) and their families. Emergency and crisis plans top the list. It starts with austerity measures to conserve cash for diversion to fundamental needs -— shelter options, transport options, food security, medical security, documents security, financial security. It includes networking with like-minded individuals and groups whom we could learn from and reciprocate with our own knowledge. The more the better.
Underlying all that is a personal commitment to pro-actively work for peace in whatever venue I may be in, and a deep abiding faith that God helps those who fight for a higher cause and the common good.
This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP.
Rafael “Raffy” M. Alunan III is a member and former governor of the MAP, chair of the Philippine Council for Foreign Relations, vice-chair of Pepsi-Cola Products Philippines, Inc., and sits on the boards of other companies as independent director.
“While presidential candidate Bongbong Marcos is calling for unity, we are saddened by the men and women of the Catholic [Church] who are doing the exact opposite and have abused the pulpit, allowing it to become a platform for hateful and negative campaigning. As men and women of the cloth, they should be more circumspect, refrain from openly meddling with politics and stop making reckless imputation or statement that only serves as a spiritual, moral, social and cultural poison.”
That was the reaction of lawyer Vic Rodriguez, spokesperson of presidential candidate Bongbong Marcos, to the pastoral letter of the Catholic Bishops’ Conference of the Philippines (CBCP). The letter warned the electorate against the “virus of lies” being sown in social media by troll farms.
In response to Mr. Rodriguez’ remark, Kalookan Bishop Pablo Virgilio David, who signed the pastoral letter in his capacity as president of the CBCP, said, “No, we don’t foment hatred. That’s unchristian. The only enemy we are taught to renounce is Satan — who is the prince of lies and who alone is happy when the social media are used to spread lies and disinformation.” CBCP executive secretary Fr. Jerome Secillano also said that “this candidate might not tolerate factual information and dissenting opinions after all.”
The letter calls on the faithful, especially the youth, to examine carefully what is happening in the quest for a true and just society, to engage in dialogue and discernment, to listen to the dictates of their conscience, not to the falsehood or distortion of the truth propagated by troll farms. The letter was sent out on February 25, anniversary of the triumph of People Power over the Marcos Dictatorship. Here are excerpts from the letter:
“The present state of division among us due to politics, is unfortunate. Yet, we hope all of us consider the common good as foremost concern. Let us respect one another — not giving in to hatred and rash judgments. Let us diligently seek the truth that we may do what is right and avoid evil.
“We are here to provide moral and spiritual guidance, in accord with our mission of proclaiming the truth from our faith.
“The elections are fast approaching …but we are appalled by the blatant and subtle distortion, manipulation, cover-up, repression and abuse of the truth, like: historical revisionism — the distortion of history or its denial; the proliferation of fake news and false stories; disinformation – the seeding of false information and narratives in order to influence the opinion of the people, to hide the truth, to malign and blackmail people. There are troll farms which sow the virus of lies.
“In this letter, we favor none but the truth. We wish to warn you of the radical distortions in the history of Martial Law and the EDSA People Power Revolution.
“Many of us, Bishops, were witnesses of the injustice and cruelty of Martial Law. And up until now, the human rights abuses, the victims, the corruption, the grave debt and economic downturn of the country due to dictatorship are all well-documented. Again, we did not make these up. These are all written in our history.
“In view of the coming elections, we call on you, Brothers and Sisters — especially the Youth, to examine carefully what is happening in our quest for a true and just society. Engage in dialogue and discernment. Listen to your conscience. Be the ones to decide.”
I find it hard to understand why Mr. Rodriguez was saddened by such a plea. Strange that he should frown on people of the Catholic Church “meddling” in matters of the state when he found nothing wrong about the endorsement of Bongbong Marcos’ presidential bid by Apollo Quiboloy, Executive director of the Kingdom of God, and by Mike Velarde, leader of the Catholic charismatic group El Shaddai.
Mr. Rodriguez’ statement that men and women of the cloth should refrain from openly meddling with politics must come from the common but erroneous understanding of the concept of separation of church and state — that the church should confine itself to matters of faith and morals only and should not stray into matters of the state.
But separation of church and state simply means the state or government should not officially recognize or favor any one religion or church and should remain neutral toward all religions. The 1987 Constitution of the Philippines declares, “No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof. The free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be allowed. No religious test shall be required for the exercise of civil or political rights.”
In other words, the government cannot establish a national religion. It also means that the government cannot force citizens to practice a specific religion nor prevent them from practicing what their religion obligates or allows them to do. Bigamy is illegal in the Philippines but Filipino Muslims may take more than one wife if they can deal with them and treat them equally.
Conversely, the church or a religion cannot force the government to observe the canons of the church. The government is free to pass any law it wants, even if the law conflicts with the church teachings. Example is the Reproductive Health Law which guarantees free access to any modern contraceptive, the use of which the Catholic Church considers immoral.
There is no Philippine law that prohibits a priest, pastor, imam, rabbi, or any leader of a religious group from having an active interest and participation in politics or affairs of the state. In fact, it is his duty as citizen to be active in political matters and to exercise his right to choose who should govern the citizenry.
The idea of the separation of church and state came about during the period of the Protestant Reformation. Monarchical absolutism, which is the King having absolute authority over state and religious matters, became widespread in Western Europe in the 15th and 16th centuries. Monarchs ruled by the idea of divine right, that the King ruled both his own kingdom and the church within his territory.
On the other hand, there was the Catholic belief that the Pope, as the Vicar of Christ on earth, should have authority over the Church and to a large extent over the state. In fact, throughout the Middle Ages the Pope claimed the right to dethrone the Catholic kings of Western Europe.
Most famous among the monarchs who had both temporal and spiritual powers was King Louis XIV of France who declared “L’etat, c’est moi” (“I am the state”). Another was King Henry VIII of England who established the Church of England after his request to divorce his wife, Catherine of Aragon, was rejected by Pope Clement VII.
Queen Isabella I and King Ferdinand II, known as the Catholic Monarchs of Spain, who jointly ruled the kingdom in the latter part of the 15th Century, formulated both domestic and religious policies. In fact, their reign was marked by the religious unification of the Iberian Peninsula through militant Catholicism.
The conquistadores from Spain brought to the Philippines in the 16th Century the concept of a government that has authority over secular and ecclesiastical matters. Catholicism and the Spanish government were inseparable in the Philippines during the Spanish colonial era. The religious orders played a dominant role in the administration of the Philippines. By the late 19th Century, the Catholic religious orders were the most politically powerful groups in the Philippines.
The fusion of the Catholic Church and the Spanish colonial government presented a problem to the new American colonial government. The Founding Fathers of the United States of America espoused the absolute separation between church and state. Their forebears were those who fled the religious persecution in Europe or those who sought religious freedom. The First Amendment to the Constitution of the United States provided that Congress make no law respecting an establishment of a religion or prohibiting its free exercise.
It took the American colonial government about 30 years to convert the Filipino leadership to the concept of separation of church and state. Thus, the 1935 Constitution of the Philippines, crafted under the guidance of the American colonial administrators, adopted the same provision expressed in the First Amendment to the US Constitution. So did the 1973 constitution drafted by Ferdinand Marcos himself and the 1987 constitution written by a commission formed by President Cory Aquino.
Therefore, no Filipino citizen, whatever his religion may be, exalted his position in his religion may be, should inhibit himself from active involvement in politics or even from endorsing a presidential candidate.
Oscar P. Lagman, Jr. is a retired corporate executive, business consultant, and management professor. He has been a politicized citizen since his college days in the late 1950s.
SINCE THE FIGHTING BEGAN in Ukraine, bond yields in the US have moved lower and equities have trailed off by about 2% globally.* Meanwhile, the Federal Reserve Bank of Atlanta’s “GDP Now” forecast has plunged to predict zero growth in the first quarter of 2022. Simultaneously, inflation rages and is likely to be pushed higher by surging global energy and commodity prices owing to war, sanctions, and the threat of supply disruptions. It is little surprise that the word “stagflation” is trending as the world grapples with the possibility of both slower economic growth and higher inflation.
SUPPLY IS USUALLY THE CULPRIT, NOT DEMAND
The combination of higher prices and lower output generally arises from an adverse supply shock. That’s what happened in the 1970s when twin oil embargoes in 1973 and again in 1979 stalled growth and pushed up prices. Something like that could happen again if sanctions or acts of war disrupt the flow of Russian or Ukrainian oil, gas, wheat, corn, and other commodities worldwide.
Higher prices would reinforce a demand-driven surge in prices and wages already underway before the invasion. Accelerating inflation followed an unprecedented peacetime fiscal expansion in 2020–2021 that coincided with sluggish production, distribution, and labor supply responses owing to pandemic disruptions. Inflation has also been exacerbated by a shift in consumer spending from services to goods that caught producers off guard.
US INFLATION IS RISING, BUT UNLIKELY TO LEAD TO STAGFLATION
There are two reasons why stagflation in the United States is unlikely. The first is that adverse supply shocks are only a part of why inflation is now high. Excess demand is a bigger part of the story, and demand is already slowing. As it does, price and wage pressures are apt to abate.
The second reason is that an adverse supply shock cannot create sustainably higher inflation by itself. Either it must unleash a wage-price spiral, or it must prompt central banks to ease and over-stimulate demand.
Readers may be puzzled — aren’t prices and wages going up already? Yes, they are. But the key is understanding the difference between a one-time “shock” of demand exceeding supply — which is what the United States and much of the world economy has recently experienced — and an ongoing spiral of prices, which can only result from persistent ongoing increases in demand greater than supply. The latter leads to ongoing inflation. The former to a temporary period of price increases that, on its own, will plateau.
So why is demand unlikely to outstrip supply? One key reason is a collapse in purchasing power. Wage growth adjusted for inflation is falling rapidly, the worst period of real wage decline in a quarter century. The US February employment report provided further evidence — average hourly earnings are not keeping pace with rising prices.
Some observers might counter that workers will step up their demands for higher wages. That might happen, but a return to 1970s-style wage-price spirals seems unlikely. Unionization rates have plunged in the past half century, eroding collective bargaining power of workers. Automatic cost-of-living adjustments are a distant memory. Also, surveys and market indicators show that long-term inflation expectations are not consistent with a broad-based anticipation of durable higher inflation. If households and investors believed that a wage-price spiral was likely, long-term inflation expectations would surely be rising.
Another reason why inflation expectations have not moved much is that the 2021 spending boom has peaked. Household savings have fallen back to pre-pandemic levels, suggesting that “pent up” demand is receding. Meanwhile, last year’s COVID-19-relief checks, child tax credits, and healthcare spending surges are over. Last year’s government spending is not being repeated this year. Fiscal stimulus is rapidly becoming fiscal drag. In the United States, fiscal policy could lop off at least percentage point from gross domestic product growth this year.
In short, neither precondition for the inflation side of stagflation is probable. Demand appears unlikely to outpace supply on a recurring basis. And a wage-price spiral appears unlikely.
EUROPE FACES MORE UNCERTAINTY
In Europe, the situation is different. Unlike the United States, Europe is a major energy importer, both for crude oil and natural gas. Gas storage was already at low levels going into this crisis, creating conditions where higher prices will unambiguously dent European household purchasing power and hence overall demand. Europe’s reliance on Russia and Ukraine for key agricultural commodities and metals could also impact input costs for businesses across multiple industries, further impacting inflationary pressures. For all those reasons, the downside risks to growth in Europe are significantly higher than those in the United States. And, like the United States, measured inflation is being boosted by one-time supply shocks, above all coming from commodity prices.
SLOWING GROWTH IS THE RISK CHINA IS FOCUSED ON
China has experienced slowing growth in recent years, accelerated by zero-COVID policies and rising input costs, especially commodity costs, that have not been passed to the consumer over the past two years. Domestically, China remains hamstrung by property market excesses, many of which resulted from past lax borrowing standards and poor investment decisions. At the same time, the Chinese leadership has expressed its displeasure with growth that risks falling below 5%. If US growth cools this year and Europe’s recovery stalls, China’s export engine will not likely be sufficient to meet Beijing’s overall growth objectives.
FOCUS ON CENTRAL BANK RESPONSES
What does all this mean for monetary policy and interest rates?
Despite slowing growth and rising uncertainty, the Federal Reserve (Fed) remains committed to tightening US monetary policy. To be sure, Russia’s invasion of Ukraine has changed the calculus about how fast the Fed will move. Fed Chairman Jerome Powell openly stated his preference for a quarter point hike at this month’s Federal Open Market Committee meeting, quashing any expectations for a larger move. Russia was the reason.
Yet the Fed remains confident that fallout from the war will be modest. Partly that is because the US is energy self-sufficient. While higher oil prices will probably weaken US growth via falling real wages in 2022, the impact will likely be smaller than during the 1970s oil embargoes when the United States was a major energy importer and energy was a larger part of the economy.
The European Central Bank (ECB) faces a bigger challenge about what to do. Its mandate is singular — keep inflation low. But it cannot realistically ignore that war and surging commodity prices imperil any economic recovery. European countries may boost defense spending, but that impact won’t be felt for quarters or perhaps years. Accordingly, the ECB will be hesitant to follow the Fed’s rate hiking cycle, even if reported inflation remains above the ECB’s target.
But perhaps the most interesting central bank to watch this year will be the People’s Bank of China (PBOC). The reverberations of Russia’s invasion, coupled with the end of Western fiscal stimulus is pushing the PBOC to buck a global tightening trend and ease monetary policy in 2022. Global growth, which in the past two years was held up by western fiscal stimulus, may be shifting again eastward, as China moves to prop up its economy.
The bottom line is that investors should avoid being swept up in discussions about stagflation. It is a term more prevalent in the media than economics, and for good reason. Instead, astute investors will focus on how central banks respond to the shifting fortunes of the world economy and the jolt delivered by war. Their actions will drive developments in global bond markets and, hence, across all portfolios.
*Source: MSCI. From Feb. 24, 2022 through March 4, 2022.
Stephen Dover is the chief market strategist and head of Franklin Templeton Investment Institute.
