A partnership with Congress

It’s amazing. Here we are halfway through a presidency and for the first time ever we have a President who has retained his popularity, trust and support. In the Social Weather Stations’ latest survey, 86 percent of the public still supported him (I removed the undecided because having no opinion, they should not be included). But what is even more amazing is that in a roundtable I held on Aug. 12, 81 percent of my clients (CEOs and senior executives) said they believed that President Aquino was doing a good job, 19 percent believed he was doing an average job, and no one thought he was doing poorly.

This is definitely impressive, and shows he must be doing something right. My problem is that he may feel it’s enough and complacency may set in. Yet this must not be because, as everyone has pointed out, the gains achieved haven’t benefited the bulk of the populace. What we’ve seen is primarily consumption-driven economic growth, not one propelled by exports and investments. That sort of growth doesn’t provide jobs.

And that’s the key point I made in the briefing I gave; the disappointment of the recent State of the Nation Address is that the focus on jobs wasn’t there. Oh, there was some discussion, but no real focus. The efforts that 17 business chambers made to advise the President on what they believed should be done to attract much greater levels of investment were mostly not addressed.

We had at our roundtable Senate President Franklin Drilon and House Speaker Sonny Belmonte, plus half a dozen of the key congressmen who chair committees relevant to business. We concentrated on bills that were needed to improve the business climate. And it was gratifying that the priorities of business almost fully matched the priorities of Congress.

And it started off with the one that is foremost in importance today: a review of the economic sections of the Constitution. Do you realize that most of the economic restrictions were actually written in 1935 and just copied in 1986? To say it’s a vastly different world today would be putting it mildly. We had AM radio then.

Both leaders of Congress agreed with the need; it was even the first resolution filed in this 16th Congress, by Speaker Belmonte no less. That’s how important he thinks it is.

Interestingly, the business community agrees. In a survey we’re conducting among business chambers, the initial result is that 90 percent (yes, 90 percent) want amendments done. You can’t get a more positive response than that. So I hope the President will listen to these voices and add his support. (I will have a more intensive paper on this available in about a week’s time.)

The other controversial topic raised was the taxes on mining which the President has asked Congress to review. There are major misconceptions on this issue. A surprising number of people think the 2-percent excise tax is it. So clearly most unfair. If it was, it would be, but it’s not all that’s paid. Firstly, the 2 percent is on gross revenues before any expenses are taken into account, then there’s the 5-percent royalty to mineral reservations and 1-percent royalty to indigenous communities (or as agreed by the mining firm and the community).

Next you must add the 30-percent income tax on net income, the local fees, and the considerable expense on providing local services (school buildings, hospitals, roads, even power and water) that responsible mining companies pay for. The end result is that about 38 percent to 50 percent of net income benefits the local economy. Surely that’s fair, so why review the tax? Both speakers agreed that whatever is decided, it must be competitive with what other mineral-rich countries provide.

As one of our guests, Mitch Hooke, the CEO of the Minerals Council of Australia, pointed out, applying an excessive tax rate will lead to no tax revenues because companies just won’t come. There are many countries that are resource-rich and aggressively working to provide an attractive business climate for mining investment, so the Philippines could lose out entirely if the taxes to be imposed are not carefully thought out. He stressed that whatever policies are decided, they must be consistent and stable.

Congress will support the two (the only two) business-related bills the President raised in his Sona. There are currently 186 laws that provide both fiscal and nonfiscal incentives to foreign investors. Bringing those all down to one is obviously desirable, but it’s a bill that’s been in Congress since 2004, so passing it now is a priority for everyone. It’s just important that the focus is on making the Philippines competitive with its neighbors, not just maximizing revenues to government.

The other bill is the Cabotage Law. The 90-year-old statute that provides Philippine vessels exclusive right to ply Philippine waters must be amended. It costs $450 to ship a 20-foot container from Davao to Taiwan, and $560 to ship it to Manila. Allowing foreign vessels to compete will widen competition and lower costs. Senator Drilon recognizes that the domestic players oppose the measure, but just like the sin tax reform, President Aquino is expected to utilize his massive political capital to get the bill through Congress.

Other bills of importance to business were discussed, and there was general agreement on their need. What came through is that the leaders of Congress know what business needs in the way of new or amended laws and will work toward giving them. But we’ll need the President’s support, too. They invited business to participate in committee hearings so our views will be heard. We should. There was a clear desire to work together in enacting measures that will support sustainable and inclusive growth.