‘Maharlika Fund’ pilloried; wealth tax seen better bet

IF the government is looking for a way to raise much-needed revenues, Ibon Foundation Inc. said creating the Maharlika Investment Fund (MIF) would not be the best way to do it.

Ibon Executive Director Jose Enrique A. Africa said it is better for government to consider the proposal of civil society organizations to impose a wealth tax than create the sovereign wealth fund (SWF).

Africa’s statement comes as other groups also criticized the proposal (House Bill 6398).

His organization, for one, sees the SWF only paving the way to “concentrate wealth and power in the hands of a few and make the country even more undemocratic.”

“If the government is really serious about raising revenues, a billionaire wealth tax or windfall real estate land value tax on just the few thousand richest Filipinos and few hundred largest firms are much more logical alternatives,” Africa said.

“The ‘misprioritization’ of public resources, poor social and development returns, and strong possibility of misuse and abuse are more than enough reasons to reject the Maharlika fund proposal being pushed by the biggest and certainly the most powerful political dynasty in the country today,” he added.

Ibon’s proposal is echoed by the Nagkaisa labor coalition who also proposes imposing a tax on the “unused assets of the wealthiest in the country.”

“Now that the Philippines is gradually recovering, potential revenues from wealth tax can now be used to fund ideas such as SWF without risking workers’ funds,” the coalition said.

Annual infusions

IBON expressed its reservations about the fund saying the proposed law seeks exemptions from the GOCC Governance Act, Government Procurement Reform Act and Competition Law—all of which are laws for protecting the public interest.

These exemptions, Ibon said, could create conditions for the commission of corruption. This is worrisome, Ibon said, as there is so much money involved.

The fund, Ibon said, will start with P275 billion from government financial institutions. This is composed of P125 billion from the Government Service Insurance System (GSIS) and P50 billion from the Social Security System (SSS).

It would also draw P50 billion from Land Bank of the Philippines (LBP), P25 billion from Development Bank of the Philippines (DBP) and another P25 billion from the national government budget.

Ibon said this is just the initial amount as annual infusions are planned from the national budget, Bangko Sentral ng Pilipinas (BSP), Philippine Amusement and Gaming Corp. (Pagcor), and other as yet unidentified sources.

Safeguards ‘dubious’

IBON said in the following year, as provided in the law, the 10-percent foreign currency equivalent of remittances might be at least P175 billion and 10 percent of business process outsourcing (BPO) revenues (around P165 billion); 10 percent of Pagcor revenues is P3.3 billion. These are based on Ibon’s interpretation of Article III, Section 9.

“The P275 billion on start-up, possibly growing to at least P618.3 billion in the second year, [is a] huge sum of public money. Full disclosure, transparency and accountability need to be paramount—yet these are precisely what the law creating the fund specifically discards,” Africa said.

Ibon said the safeguards put in place are also “dubious” and should not exempt the fund from safeguards under existing laws and, if anything, should have even strengthened or added to these.

Africa said if the government had excess fiscal and foreign exchange resources, these are much better spent on more urgent ayuda, wage subsidies, small business support, and public schools and hospitals.

He added that these lead to more concrete and immediate social benefit than an explicitly profit- and return-seeking investment fund. These returns are actually even uncertain especially amid current domestic and global economic conditions.

Pension funds

ACCORDING to an analysis paper by Ibon, removing regulatory restrictions on pension funds exposes the GSIS and SSS to “unnecessary peril.” While the argument is that this potentially increases returns and profitability, it makes these pension funds subject to volatility and even losses, the paper read.

It said the list of allowable investments includes, for instance, risky unlisted equities and financial derivatives aside from the ambiguous “other investments as may be approved” (Article IV, Section 11).

“Most of the country’s millions of Filipino pensioners do not come from well-off families. Their well-being should be protected and not be made subject to the vagaries of financial adventurism seeking ‘the best absolute return,’ as the MIF’s objectives explicitly state [Article II, Section 6],” Africa said.

The use of public pension funds for the proposed MIF is rejected by Nagkaisa.

In a statement issued last Saturday, Nagkaisa said using funds from the SSS and the GSIS may put the sustainability of the operations of both institutions at risk.

“There is a reason both SSS and GSIS are very careful in their investment decisions and that is because that is how they secure future generations of Filipinos,” Nagkaisa said.

“[The] GSIS should know the risks involved especially in foreign money market, after all, their exposure to the 2007-2008 Global Financial Crisis may have cost the pension fund some of its resources,” it added.

SWFs worldwide

There are currently more than a hundred SWFs worldwide of around 65 governments worth some $10 trillion. By number and by value, most of these are financed from natural resource earnings—especially of energy commodities like oil, coal and natural gas but also minerals—followed by pension funds.

Five Southeast Asian countries have six SWFs. The two biggest are from Singapore, which accumulated massive foreign exchange reserves from being a major financial and commercial center.

Brunei, Timor-Leste, Indonesia and Vietnam also have SWFs. If it pushes through, the MIF will be the sixth-biggest SWF, possibly becoming the fifth biggest if our estimates of additional contributions in the second year are correct, according to Africa.

‘Wealth scam’

THE nongovernment organization Anakpawis also registered its opposition to the MIF as citing the SWF as “dubious, prone to corruption and abuse.”

A statement expressed alarm on “where the hundreds of billions of dollars will go in the guise of generating additional income for the country.”

Another group, the Pamalakaya, said while the government is now looking to spend for the Maharlika Fund, basic social services like education, health, public infrastructure and support to the poor remain wanting.

The group cited their call that government provide a subsidy of P15,000 ($269.13 at current exchange rates) so each fisherman can address the skyrocketing cost of production.

“It is clear for us—the marginalized sectors like farmers, fishermen and workers—that the objective and orientation of the Maharlika Funds is not for the poor,” the group’s statement read.

“Unless the proponents have concrete plans about protecting the SWF from turning into a ‘Maharlika Wealth Scam,’ HB 6398 cannot just be allowed to pass,” Nagkaisa said.

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