Tax reform battle in Congress bares limits of Duterte magic

By Maria Eloisa I. Calderon
Editor-At-Large

WHEN President Rodrigo R. Duterte handily won the 2016 presidential elections, with that victory came political certainty and control of both chambers of Congress.

That popularity and the political alliances, however, have yet to translate to a policy breakthrough: tax reform — the litmus test for a President so popular that he can have an anti-populist bill breeze through Congress and get the public to agree to it.

That was the expectation.

But it’s not happening. A timetable for the Senate and House to form a bicameral committee to reconcile their versions has been pushed back and now lawmakers are instead on a month-long break that ends Nov. 13.

And if there were any indication of how resilient his political capital could be, Mr. Duterte’s public satisfaction ratings fell for the first time since he took office in a latest survey the Social Weather Stations (SWS) released two weeks ago — a development political analysts said was to be expected after any president’s first few months in office.

Without that tax reform, Mr. Duterte’s trademark infrastructure policy could fall flat and, already, the World Bank cut its growth estimates for the Philippines while global investment banks too have flagged the slow infrastructure rollout as a key risk to their outlook.

Still, Mr. Duterte’s political capital need not turn out to be ephemeral, political and social scientists said.

The President has enough time — between now and 2019 — to push his tax agenda before his popularity falls further and the political landscape gets murkier in the second half of his term, when it’s traditionally harder to rally support from lawmakers jockeying for reelection and shifting alliances, they said.

“The first half of any presidency is the most opportune time for passing legislation,” Edmund S. Tayao, political analyst and executive director at the Local Government Development Foundation, said in an Oct. 20 phone interview.

“Because in the second half, most political leaders are repositioning themselves and finding a way to remain in office.”

Mr. Duterte seemingly knew that the fractured nature of the Philippine political system could either be that liability Mr. Tayao spoke of, or alternatively, an ace up his sleeve.

The country is holding its Congressional elections a year-and-a-half from now and among the vulnerable is first-termer Senator Juan Edgardo “Sonny” M. Angara, a re-electionist come 2019.

Mr. Duterte initially stuck to his script during his second State of the Nation Address (SONA) last July — calling on Senate “to support my tax reform in full and to pass it with haste” — only to return to form and single out Mr. Angara.

“Ayaw man magpalakpak, ah… They are not clapping. Si Angara ayaw din mag-clap (No one’s clapping… Even Angara does not want to clap),” Mr. Duterte had said in his SONA.

“Bantay ka lang sa eleksyon, tingnan mo (Keep an eye on the election and you’ll see),” he said in a remark which political analysts took to refer to Mr. Angara’s not having the political machinery or likely not mustering support if he were to seek a second term as senator.

As the chairman of the Senate ways and means committee, reviewing revenue bills is part of Mr. Angara’s brief.

If political history were to be the basis of how he must treat a tax bill, Mr. Angara must know that he could be straight-jacketed by the midterm elections.

The last time the Philippines touched its taxes was in 2012, when then President Benigno S.C. Aquino III signed a law raising the levy on cigarettes and alcohol.

Before that, there was the Expanded Value Added Tax (E-VAT) law that brought the sales tax to 12% from 10% in 2005.

PRECEDENT
That bill was blamed for costing E-VAT tub-thumper Senator Ralph G. Recto, a first-termer, his reelection bid.

Mr. Recto lost the 2007 congressional elections and returned to the Senate only in 2010. He was reelected in 2016 and is currently the Senate President Pro-Tempore.

Senators, under Philippine laws, can serve only up to two straight terms, each running for six years.

Mr. Recto, who according to his staff is abroad, did not respond to BusinessWorld calls, mobile phone and e-mail interview requests.

“In the case of Recto, no one (voters) saw that E-VAT resulted in significant improvement in basic services. They only saw the additional taxes,” Mr. Tayao explained.

“But if they saw the trade-off, I’m sure it would not have been that controversial.”

The Duterte government’s tax reform package — based on a Jan. 30 configuration submitted at the House of Representatives — was supposed to yield P162.5 billion in net revenues on its first year of implementation as higher taxes on cars and oil as well as fewer VAT exemptions offset cuts in personal income tax, estate tax and donor tax rates.

The Senate position – with a version yielding revenues less than half that amount — is short of the tougher line urged by Finance department.

The latter had been fighting its corner to have a law worded closer to the draft it first proposed to Congress in September last year.

Ways and means committee’s Mr. Angara said in an Oct. 20 mobile phone reply that the “tax reform will definitely pass [in the] first half [of the Duterte administration].”

“We just do what we think is good for the country and hope it will be appreciated when the time comes to be judged by our people,” Mr. Angara told BusinessWorld when asked if he’s worried that sponsoring the tax bill could hurt his reelection bid come 2019.

SUPERMAJORITY?
It won’t be that bad for Mr. Angara, said a sociologist from the Ateneo de Manila University’s Development Studies Program which partnered with the SWS for an election-related survey last year.

“Are voters predisposed based on how senators voted [on a bill]? No,” sociologist Jayeel Serrano Cornelio said in an Oct. 20 phone interview.

“It depends on how these candidates present themselves. If we look at general pattern, it’s not issue-driven. If that were the case, we would have had strong parties.”

The lean Partido Demokratiko Pilipino-Lakas ng Bayan (PDP-Laban), Mr. Duterte’s political party, made beachheads in both the House of Representatives and the Senate by forming alliances with the Nationalist People’s Coalition, Nacionalista Party and the Lakas-CMD Christian Muslim Democrats in May 2016 shortly after his big win.

That move meant the erstwhile ruling Liberal Party (LP) was outnumbered after some of its members jumped ship. At the 24-member Senate, the ratio is six LP members to 18 senators of the majority bloc.

PDP-Laban founder Aquilino “Nene” Q. Pimentel, Jr., whose son Aquilino “Koko” L. Pimentel III is now Senate President and the lone PDP-Laban member there, said: “The party cannot do things by itself. It needs allies.”

“So far I can guess that he [Mr. Duterte] has a workable hold on the Senate because of the coalition that has been formed…,” the older Pimentel said in an Oct. 19 phone interview.

“But the President can’t expect 100% support for everything he is espousing in the tax package. He should be prepared to understand that because that’s how democracy works.”

Mr. Duterte’s much-touted “supermajority” did not translate to solid votes on tax policy.

“We don’t have strong parties. What we have are strong personalities. Alliances are based on strong personalities,” Mr. Cornelio said.

And so runs the refrain: party labels are not the defining trait for members of Congress.

The 2019 midterm elections – when voters may or may not remember who pushed for what — loom large.

“You want to change the political system because you want to correct this vicious cycle of being able to do only so much in the first half [of any politician’s term],” Mr. Tayao said.

It’s another argument Mr. Duterte can use to make a strong case for federalism, he said.