Presentation at a Development Studies Class at DLSU, why welfarism and populism is not good.

1. Welfarism, Public Debt and Development Hindrance
Bienvenido “Nonoy” Oplas Jr.
Minimal Government Thinkers, Inc.
Presentation at the Development Studies Class
De La Salle University (DLSU), Manila
04 December 2014
Occasional lectures
in the Philippines

2. Outline
I.Welfarism
II.Rising Size of Governments
III.Rising Public Debt
IV.Minimal Government
V.Conclusions

3. I. Welfarism
• The political and social belief that individual and parental responsibility should be subsumed or substituted by more government responsibility in improving people’s welfare.
• From education to healthcare, from unemployment allowance to food stamps, from housing to train fare, from seeds to agri credit, an endless program of subsidies, all finance via high taxes/fees/fines/penalties and endless borrowings
• Giving more powers to governments and their officials, elected and appointed. Spending power and taxation power.

4. (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 (“inclusive growth”, industrialization)
COSTS (taxes, fees, debts)
Figure 1. Expanding Government, the promise or hypothesis of expanding welfare/benefits

5. 1993
2013
France
54.6
57.2
Denmark
60.7
56.9
Finland
62.8
56.1
Italy
59.1
54.5
Belgium
56.5
54.5
Sweden
71.0
53.0
Austria
57.0
51.2
Hungary
50.0
Portugal
45.4
48.7
Ukraine
48.4
Greece
43.6
47.2
Netherlands
46.7
Spain
46.7
44.9
1993
2013
Germany
48.0
44.5
Norway
51.7
44.2
United Kingdom
42.3
43.8
Belarus
0.7
42.9
Czech Republic
42.3
Poland
41.9
Ireland
43.8
40.4
Slovak Republic
38.7
Turkey
38.1
Russia
37.9
Bulgaria
37.4
Romania
34.3
Switzerland
36.2
32.9
II. Big and Rising Size of Governments General Govt Total Expenditure, Percent of GDP, 1993 & 2013 Source: IMF, World Economic Outlook (WEO) 2014 Database

6. 1993
2013
Canada
56.9
44.5
Brazil
41.1
Venezuela
27.7
38.0
Argentina
36.8
United States
36.6
Colombia
20.0
29.2
Mexico
18.0
27.1
Chile
21.5
23.8
Australia
33.5
37.4
New Zealand
42.5
35.4
1993
2013
Japan
32.4
40.0
Brunei D.
51.7
37.6
Laos
29.6
Malaysia
29.0
28.9
Myanmar
26.5
Thailand
24.3
Korea
20.9
Cambodia
20.3
Hong Kong
16.4
20.2
Indonesia
17.0
20.1
Taiwan
29.3
20.0
Philippines *
18.6
Singapore
16.8
16.6
China **
13.0
29.1
Vietnam **
28.5
General Govt. Total Expenditure, Percent of GDP, 1993 and 2013
Source: IMF, WEO 2014 Database
* PH’ local govts spending not included. ** China, Vietnam’s many state enterprises, local govts, not included.

7. 1993
2013
Greece
100.5
175.1
Italy
115.0
132.5
Portugal
54.4
128.9
Ireland
93.6
116.1
Belgium
137.8
101.2
Spain
56.1
93.9
France
44.9
91.8
United Kingdom
44.0
90.6
Hungary
n/a
79.3
Germany
45.8
78.4
Austria
60.9
74.5
Netherlands
n/a
68.6
Poland
n/a
57.1
1993
2013
Slovak Republic
n/a
55.4
Finland
52.3
54.7
Switzerland
48.5
48.3
Czech Republic
n/a
46.0
Denmark
80.1
44.5
Ukraine
n/a
40.9
Sweden
69.9
40.5
Romania
n/a
39.4
Belarus
n/a
37.0
Turkey
n/a
36.3
Norway
53.7
29.5
Bulgaria
n/a
16.4
Russia
n/a
13.9
III. Rising Public Debt
General Govt Gross Debt, Percent of GDP, 1993 & 2013
Source: IMF, WEO 2014 Database

8. 1993
2013
United States
n/a
104.2
Canada
96.5
88.8
Brazil
n/a
66.2
Venezuela
n/a
52.1
Mexico
n/a
46.4
Argentina
25.1
41.0
Colombia
n/a
35.8
Chile
28.3
12.8
New Zealand
57.2
36.1
Australia
30.6
28.6
1993
2013
Japan
79.9
243.2
Singapore
68.7
103.5
Laos
n/a
61.3
Malaysia
55.7
57.7
Vietnam
n/a
51.6
Thailand
n/a
45.9
Taiwan
n/a
41.1
Myanmar
n/a
39.8
China
n/a
39.4
Philippines
n/a
39.1
Korea
11.2
33.9
Vietnam
28.5
Cambodia
n/a
28.4
Indonesia
n/a
26.1
Hong Kong
n/a
6.7
General Government Gross Debt, Percent of GDP,
1993 and 2013
Source: IMF, WEO 2014 Database  Compared to Europe and N. America, Asian economies are not heavily indebted, except Japan and Singapore.

9. Philippine Experience: Principal + Interest Payment of 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?

10. 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.

11. 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.
* PH population 100 million middle of 2014, from 92.3 milion in May 2010 national census.
* Every Filipino, men and women, young and old, rich and poor, has a per capita debt of around P60,000. Mortgaging the future.

12. •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, then people should be productive enough to pay back those debt, debt stock should plateau, if not decline.
•This s not happening. Past public spending for many agencies and programs were designed to be forever, no timetable spending, inefficient.
•Public debt stock keeps rising, around P350 to P400 billion a year on average.

13. Backward-bending curve, as costs
increase, the benefits to average taxpayers decline, (might even approach zero to some people)
BENEFITS ( “inclusive growth”, industrialization..)
COSTS (taxes, debt)
Figure 2. Deviation from the Promise (the reality)
IV. Minimal Government
The Promise,
Figure 1 above

14. Figure 3: 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

15. Figure 3: 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

16. V. Conclusions
1.Welfarism and populism is wrong. Individual and parental/guardian responsibility should not be subsumed by more government responsibility.
2.Welfarism results in corruption of the people’s values, creates more state dependency and sense of entitlement. The income and investments of hard working people are not entirely theirs, other people are “entitled” to get a big portion of it.
3.Governments around the world remain big, or keep expanding. Local, national and international/multilateral government agencies. This means their appetite for more taxes, fees, fines and penalties keep expanding.

17. 4. Existing taxes, fees, fines are no longer sufficient to sustain huge spending by governments. Endless borrowing is the norm.
5. Almost all governments around the world are indebted, they vary only in the extent of indebtedness. The more welfarist and populist the government, the more indebted it is.
6. Being indebted is not bad per se. In cases of emergencies and natural calamities (ex. Big earthquake in 1990, Mt. Pinatubo eruption in 1991), borrow.
7. But when there are no clear emergencies, governments should have balance budget at least, fiscal surplus if possible and pay back some debt. This is not happening, in most governments worldwide.

18. 8. Fiscal responsibility, governments should learn to live within their means, do not engage in endless borrowings, do not mortgage the future of the next generations.
9. But we must not renege those debt payment, pay them all. The hugeness of the debt and its interest payment is a constant reminder to the current and future administrations that endless borrowing is wrong.
10. Reduce taxes especially personal and corporate income tax, leading to zero income tax. Governments have many other taxes and fees to collect, have many assets to privatize.
11. The promise and hypothesis of “expanding government leads to expanded welfare” is hardly happening. In most cases, the opposite happens, backward-bending case of diswelfare as government size keeps expanding.