Pork Barrel and Minimal Government

Bienvenido “Nonoy” Oplas Jr.

Presentation at the Department of Social Sciences Adamson University, Manila

04 September 2013

Outline

I. Theory of Pork Barrel

II. Pork Barrel Scam

III. Public Debt Scam

IV. Minimal Government

V. Conclusions

I. Theory of Legislators’ Pork Barrel

* Definition: Pork barrel funds are government appropriations bill,

programs or projects requiring considerable spending in a locality to the

benefit of the legislators’ constituents, supporters and/or contractors.

• Consistent with expansion of government at the Executive branch,

supposedly to “fight poverty”, a political mantra since governments were

invented. It’s now popularly called “inclusive growth”.

• Executive branch’s bribe to the Legislative branch so that the latter will

allow the former to have its own pork and wasteful spending, will not be

an activist and questioning body.

(a) Passive route: through time, costs

will stabilize while benefits will

expand

(b) Progressive route: initially, costs will be high, decline later, while benefits continue to expand

BENEFITS (growth with equity or “inclusive growth”, industrialization)

COSTS (taxes, debts)

Figure 1. The Goal of Expanding Government, Executive and Legislative

II. The Pork Barrel Scam

Source: PDI, August 30, 2013.

Alleged P10 B pork barrel fund Coursed through Janet Lim-Napoles (JLN) camp over many years does not seem to be itemized, except this part covering 2006-2011 and totaling only P3.13 billion.

Table 1. Amount Dispensed to Some Legislators in the Napoles Scandal

Opposition said the Administration Senators were not fully audited by COA.

Table 2. COA Audit of Selected Senators, 2007-2009

Source: Source: DBM, NEP 2012 and 2014

Note the big jump of legislators’ pork barrel from the Arroyo to the PNoy Aquino administrations, 2010 vs. 2011 PDAF fund. The trend is retained afterwards.

Table 3. Priority Development Assistance Fund (PDAF), in P Billion

III. Public Debt Scam

Table 4. Principal + Interest Payment of Philippine Public Debt, 2012-2014

Source: DBM, Budget of Expenditures and Sources of Financing (BESF) 2014, Table B.20. Interest alone: P312.8 B in 2012, P332.2 B in 2013, P352.6 B 2014, ave. of P332 B a year. Why are the people not angry at this huge transfer of money ?

Table 5. Principal + Interest Payment of PH Public Debt, 2010-2011

Source: DBM, BESF 2012, Table 18. So annual int. payment is about 14x the size of the annual lump sum pork barrel of legislators, or 32x the Napoles scam. People’s anger is not proportionate at this huge amount of money leaving our coffers yearly?

Table 6. Interest Payment as Percent of Tax Revenues, 2010-2014

Sources: Interest payment, Tables 4 and 5 above; Tax Revenues 2010-2012, DOF, Fiscal Update Tax Revenues 2013-2014, DBM, BESF 2014, Table C.1. For every P100 in various taxes that we pay – personal and corporate income tax, excise tax, VAT, documentary stamp tax, import tax, travel tax, vehicle registration tax, etc. – about P23 of it is used to pay the interest payment alone. Only P77 will be used for salaries, offices, subsidies, projects of various government agencies, local and national. Pork barrel fund of P25 billion per year, even if we assume that all of it is lost to corruption, comprises just 1.5 percent of total tax revenues

Table 7. Outstanding Debt of National Government at End of Period, in P Trillion

Sources: (1) DBM, BESF 2014, Table D.3 (2) Bureau of Treasury * Outstanding public debt of P5.865 trillion by the end of 2013. * Our population projected to be around 98.2 million by the end of 2013, from 92.3 milion as of May 2010 national census. * This means that every Filipino, men and women, young and old, rich and poor, has a per capita debt of about P59,700 by the end of December 2013.

• Public debt is simply the accumulation of wastes in government. From P1 billion a year to P10 billion a year to P300 billion a year.

• If public spending in the past was generally productive, say in public education, health, roads and bridges, irrigation canals and agrarian reform, then people should be productive enough to pay back those debt after sometime, and the debt stock should at least plateau, if not decline.

• This s not happening. Past public spending for many agencies and programs were designed to be forever, no timetable spending, and thus, are inefficient.

• Public debt stock keeps rising, around P350 to P400 billion a year on average.

Table 8. Big Outstanding Foreign Debt Securities of the National Government for Budgetary Support

Sources: (1) DBM, BESF 2014, Table D.3 (2) Bureau of Treasury * Outstanding public debt of P5.865 trillion by the end of 2013.

Backward-bending curve, meaning as costs increase, the benefits to taxpayers decline, (even approach zero to negative)

BENEFITS (growth with equity, “inclusive growth”, industrialization..)

COSTS (taxes, debt)

Figure 2. Deviation from the Promise (see Figure 1)

IV. Minimal Government Goal

Figure 3: Arthur Laffer (and JM Keynes): the higher the tax rate, the lower the tax revenue/collection

Tax rates approaching 100%, private enterprises and individuals will either stop working at some point, or they continue working but understate output, even bribe tax collectors

Table 9. BIG Philippine Business Bureaucracies (From WB-IFC’s Doing Business 2013 Report)

Figure 4: Privatization and Shrinking Government

point of full-privatization (2): Privatize many GOCCs and agencies

Room for tax cut as endless subsidies to ever-losing GOCCs

are eliminated, debt servicing greatly reduced

(1): Privatize some GOCCs, use proceeds to pay back debt. A

few “earning” enterprises be retained,and hope that costs will

be kept to the minimum

+

0

-

Costs

BENEFITS

V. CONCLUSIONS

1. Pork barrel scam is huge, cause of the scam must be stopped, the Executive and Legislative branches must be more transparent to the public. Have a Freedom of Information (FOI) law. 2. Public debt scam though is much larger, many people not aware of the magnitude of money flying out of their pockets and savings just to pay the annual interest payment. 3. We must not renege those debt payment, pay them all. The hugeness of the debt and its interest payment should be a constant reminder to the current and future administrations that endless borrowing is wrong.

4. Fiscally responsibility means government can have budget deficit and borrow a lot in cases of emergencies, like the 1990-1991 earthquake and Pinatubo eruption, or the 1997-98 Asian financial turmoil. 5. But when there are no clear emergencies, government should aspire to have a fiscal surplus, pay back some debt, cut the spend-borrow-spend policy. 6. This is not happening, there are no plans by any administration, past and present, to make this happen.

7. Taxpayers and private citizens, us, must pressure government to observe fiscal responsibility, learn to live within its means, do not engage in endless borrowings. 8. Reduce taxes especially personal income tax, leading to zero income tax. Government can survive with other taxes and fees. 9. More personal and parental responsibility in running our own lives, our own households. Not everything should be government responsibility, from books to tractors to condoms.