Greek drama

If it were not so tragic, this would have been funny.

The world teetered on the ledge for weeks after elections in Greece failed to produce a government. Then, after new elections were held, the markets waited with bated breath as negotiations for a new coalition dragged for days.

Finally, nearly on the last hour, a coalition was formed led by the New Democracy party allied with the socialist Pasok. The coalition agreement affirmed the terms of the bailout package put together by the European Union. The markets heaved a sigh of relief. At least for the moment, the Eurozone seemed safe.

Then things seemed to unravel once more.

The incoming Greek finance minister literally collapsed while taking his oath of office. He later begged off from the job — the most critical portfolio in the new government for obvious reasons. As this is being written, a frantic search in ongoing for a healthier replacement. The job is understandably most stressful.

Then the new prime minister underwent surgery and was out of action for days. Because of the electoral campaign, the surgery was postponed. The matter could no longer wait.

While all these high-level medical emergencies were going on in Athens, a Eurozone summit was looming. That summit will decide on urgent things like bailing out the Spanish banks, firming up the package for Greece, addressing Italy’s financial problems and, suddenly, saving Cyprus from bankruptcy.

With the new prime minister on the operating table and the search for a new finance minister still in progress, it was decided that the aging Greek president will represent the interests of this flagging nation in this most critical meeting. He is not the most energetic representative to the strenuous negotiations that lie ahead — but he is the only one available.

And so it will be that in the summit meeting, Greece will be represented by a ceremonial official incapable of making firm commitments. Understandably, the expectations for a robust summit outcome are fairly low.

The euro collapsed the past days. Recession now grips nearly all the Eurozone economies. The way forward is as unclear as it has ever been.

Part of the fallout from the Eurozone crisis and the deepening recession is a sharp drop in the price of oil. For consumers everywhere, the drop in the price of oil is something to be happy about — although it is really the barometer of how problematic the global economy has become.

Anti-poor

The more we examine it, the more we are convinced that the new sin tax measure being considered by Congress and endorsed as an administration priority has serious design flaws.

HB 5727 disadvantages locally produced tobacco and alcohol products and favors imported counterparts. More important, the measure in its present form penalizes poorer consumers because it shifts the weight of taxation to lower-priced products. For some odd reason, the proposed measure also shifts the burden on tobacco products and away from alcohol products.

In its present design, imported cigarette brands will be exempted from the higher excise taxes in 2013 and will be levied a measly P2 in excise taxes beginning 2014. Meanwhile, the lower-priced local brands will be slapped a whopping 700% excise tax increase. This will have severe implications on our local tobacco farmers who sell 60% of their produce to manufacturers of lower-priced cigarettes.

New entrants to the domestic cigarette market have not invested a single centavo to improving tobacco cultivation, yet they will be favored over existing manufacturers who invested much in helping improve our tobacco yield.

There is no clear explanation why the proposed measure imposes higher taxes on cheaper products relative to premium alcohol and tobacco brands. Proponents of the measure were asked about this on the floor and they failed miserably in explaining why.

Wealthier consumers patronizing premium products should, all things being equal, pay more in taxes. This is not just a matter of equity in abstract terms. It is, more importantly, the more feasible way of improving revenues. Taxing the poor more will only depress demand.

For years, revenues collected from tobacco and alcohol products were relatively even. In the new measure being considered, the tobacco industry will contribute 80% of sin tax revenues while the share of alcoholic products will drop dramatically to only 20%.

This happens because beer products in the medium and higher categories will effectively enjoy tax reductions upon passage of this bill. Lower priced beer, while taxed at a higher rate, will still enjoy a tax rate effectively lower than those presently in effect.

Again, proponents of the measure offer no sustainable argument for why this is so. The social costs of tobacco abuse and alcoholism should be relatively even. In the tax design of HB5727, it appears tobacco will be penalized heavily while alcohol consumption is encouraged.

Under interpellation, the chair of the House Ways and Means committee could only offer a silly argument: that moderate consumption of beer is actually good for the health. We might as well exempt alcoholic beverages from “sin” taxes.

Rep. Mitos Magsaysay offers what could only be the reasonable explanation for the glaring distortions in the proposed revenue measure — distortions that favor imports over locally produced commodities. She produced a list of advocacy groups receiving anti-tobacco grants in the millions of dollars from foreign lobby groups.

On the other hand, little explanation is required for the great influence of the beer lobby. Old names are associated with the brewing and distilling industry. They are names that crop up in any discussion about why the Philippine economy tends to be oligarchic.