Public finance in the time of coronavirus

Published April 7, 2020, 12:00 AM

by manilabulletin_admin

Milwida M. Guevara
Milwida M. Guevara

Maluso, Basilan, a small island in Muslim Mindanao shows us how to finance recovery. The LGU officials donated their salaries for April so that the poor can have more food, health kits and cash assistance. Public finance in the time of recovery will have to be powered by the spirit of giving, a sense of community, and genuine trust on those who lead.

Fortunately, we have demonstrable cases of local governance during this time of crisis. Policies to deal with the crisis were formulated and put in place: prevention of hoarding, compliance to the stay at home rule, protection of health workers, provision of subsidies to the poor, mobile markets, assistance to the elderly, taking care of the sick, and, enforcement of quarantine for the PUMs. These local governments will have little resistance in mobilizing additional resources for recovery. The social capital that they have built will power their community’s involvement and participation.

It will do well for the national government to follow the lead of local governments. They are partners and should not be treated with envy and suspicion. Policies will be more practical and relevant if they are part of planning and decision making. Local governments are in the frontline and know what works and what does not. More resources need to be transferred to local governments so that health centers, district and provincial hospitals can be better equipped and provide adequate health care. Let the outstanding local governments flourish so that they can set the examples and standards for their peers.

With respect to central government finance, the time calls for deficit spending instead of “more taxes”. The European Commission’s program sets an example. The Commission proposes additional spending for research and development, construction and upgrading of health facilities, production of vaccines and medical equipment. And to prime the economy, the Commission’s proposal calls for tax payments deferment, and suspension of social security contributions.

We can also learn from the example of President John F. Kennedy. To pull the nation from recession, he pumped billions into the economy through spending which did not need Congressional action. He directed federal agencies to move their spending forward as quickly as possible. Millions of funds were placed in state highways, farm price supports, tax refunds, and education. He created a Food Stamp program and expanded Employment Offices. These programs put more funds into circulation, boosted spending, and increased tax collection. He asked the Fed to use its open market operations to buy Treasury notes to keep interest rates low. The Fed also lowered interest rates from 4% to 1.98%. JFK also advocated tax cuts. At that time the income tax rate was 91%, which he wanted to lower to 65%. The results of his expansionary policies resulted to a GDP growth from 2.6% in 1961 and 6.1% in 1963.

Deficit spending is new to this government which focused on the “Train” to help finance the “Build, Build, Build” program. Its challenge is to think of how to mobilize resources to finance additional spending in the most creative ways. Additional taxes will be the last resort if government can transfer resources from unproductive activities such as intelligence and confidential funds, and the finance of newly created agencies to more critical spending such as health and subsidies for the poor. But it will have to address bottlenecks which restrict fund utilization such tons of guidelines for reviews and approvals. A Mayor of Capiz told me that he just did not have the time to read and comply with the 62- page DepEd memorandum on the use of schools for PUMs.

Giving up private funds so others can have more necessitates trust. Can government consider giving a tax credit for money that is spent on subsidies to employees, welfare programs, and social protection to targeted communities? In this manner, we are sure that our money goes to intended beneficiaries, and worry less of over-pricing, delays in implementation, corruption, and politicking. And if government officials can donate a month of their salary for recovery efforts following the example of Maluso, there will be many who u will follow their example.

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