CNN THE SOURCE INTERVIEW OF SENATOR WIN GATCHALIAN WITH PINKY WEBB ON SONA EXPECTATIONS, INFLATION, WEALTHY TAX, DIGITALIZATION, K-12

Q: So many issues to talk about. We're facing a number of problems. But I'd like to find out from you first and foremost, in terms of priority. What do you want to hear from the President State of the Nation Address on Monday?

SEN. WIN: Well, Pinky, I'll divide it into three portions, the short term, the medium term and the long term. Of course, in the short term, we're facing a lot of pressures from inflation from external factors, and we need to address that at least in the next two to three years. As long as there is that incident in Ukraine and also, the Feds hiking interest rates will face a lot of pressures here in the Philippines, especially on inflation. So the administration has to lay out a plan to navigate us through these external factors. Midterm, we need to go back to pre pandemic levels. As we all know, the midterm; the pre pandemic levels actually was very good for us in terms of lowering down poverty rates. Poverty is still the biggest challenge of our country and we were on track, prior to the pandemic, to lower down our poverty rate and we need to go back to that. In the long term, we need to make sure that we have a citizenry that can respond to the needs of the industry, in that focusing on education, and we need to make sure that we have the foundations in place so that our country can move forward and adapt to the changing times. 10 years 20 years from now they're very good.

Q: Okay, let's talk about short term inflation. 6.1% was the last inflation rate that we had. I think this was in June, if I'm not mistaken. Okay. So 6.1% That's obviously high. Some are saying that we are probably going to have an economic crisis or maybe even a food crisis and the President, now the Agriculture Secretary, what must be done immediately?

SEN. WIN: Well, definitely, what we need to do is to shield our vulnerable from inflation, meaning, for example, in fuel because these are all driven by the high cost of imported fuel. And we need to shield the riding public, we need to shield our public utility vehicles from the abrupt increase in prices. So far, we're seeing some daylight, prices have gone down from less than $100 per barrel. But we still have to prepare as long as there's that invasion incident in Ukraine, things can go up and down and we need to have the funds to shield the vulnerable.

Q: In relation to that, if I remember correctly, you weren't really for the automatic suspension of excise taxes on fuel products. There have been proposals that once it reaches $80 per barrel. There's an automatic suspension. Have you changed your mind actually?

SEN. WIN: I am not in favor because the impact to collections is quite hefty. If we suspend excise tax on fuel, that's about 300 billion in lost revenues. On the other side of the coin, if we shell out a generous Pantawid Pasada program it will only cost us about P4 billion. So if you weigh the differences, it is quite obvious. So what we need to do is to expand the Pantawid Pasada. Expand the fuel subsidy program for our farmers, especially farmers and fishermen because they also consume a lot of fuel. So expanding those programs will be more cost effective. The problem is actually Pinky is the administration, it takes time to distribute the Pantawid pasada to our drivers and it takes time to distribute the fuel subsidy. We need to shorten the distribution time and that's what I filed, as a piece of legislation, to continuously update the database, to continuously prepare our country for any eventuality of distributing Pantawid Pasada in subsidies because I noticed that we have a bad habit of preparing all of these things when the crisis is already there. We have to prepare even before the crisis occurs.

Q: Yeah, but even the execution is a problem.

SEN. WIN: It's a problem. We're not using technology to do that. We need to use technology. So in the law that I filed, regular updating of database, the use of technology, and also providing funds that are ready because I noticed that almost every year we would distribute Pantawid Pasada and this type of subsidies because again, the fluctuation is something that we cannot control but we feel it here in the Philippines.

Q: So you have for example, the DSWD cleansing the list of other beneficiaries, but you have certain brackets right now, ang bibigyan yata is about 12 million. Siguro let's just quickly look into the middle class kasi Senator marami yan, pwedeng upper saka lower. What about them? What about us?

SEN. WIN: Yeah, definitely, you know, the upper, middle and the lower middle...

Q: Kahit ilagay natin yung lower.

SEN. WIN: Correct, for now, that's why I am putting on the table if this gets prolonged, and if the fuel prices remains elevated for a long time, I'm not discounting the fact that we will remove excise tax on fuel at one point because that is sweeping and that will also hit other the middle class and other sectors for example logistics sector, the logistics sector is also feeling the pinch. And if we don't have a robust logistics sector that will affect food, that will affect other goods so I'm not removing that off the table. But that is the last resort because fiscally it will impact us. And we all know that we are scrambling for this fiscal space right now.

Q: What would be the factor that needs to be considered for you to be able to say we need to include, for example, the lower middle class?

SEN. WIN: Things like for example, if our fuel prices will remain $100 for quite some time, and we offer...

Q: What is quite some time?

SEN. WIN: Probably four months, five months, things like this. And then also, we will also have to look at the depreciation of peso because that's also a factor that drives up inflation. So basically all of these things are inflation driven. So if inflation remains high and impacts, for example, basic necessities and fuel driven necessity, fuel driven products, then we will look at that. But again, we're managing fiscal space right now and I am also very concerned that if you lower down revenues, it will affect other factors in our economy.

Q: Okay, what about emergency powers? Is this necessary?

SEN. WIN: That's also something that I am considering as a last resort. When you say emergency powers, that means giving powers to the President to purchase goods directly, to purchase goods immediately. This type of power is triggered if ever, we have shortages in commodities and products. Again, I'm not putting that off the table. However, this type of powers also reduces the check and balance mechanism for example, no more bidding, direct negotiations. And we all know that when you reduce or when you eliminate check and balance things get messy.

Q: Okay. Important to talk about food. Obviously you have the president heading the Agriculture Department. Let's talk about maybe just the staple or the basics, how to bring down the price of rice and meat products.

SEN. WIN: First of all, it's a good signal to the agriculture sector that the President, the highest official of our land, is sitting as the Secretary of Agriculture. It sends a strong signal to number one, the stakeholders of agriculture and number two, business people or business men who are involved in agriculture and I say that because it's important that signals are strong and those signals contribute to reform in the sector. So two things that I think the President should look at, number one is smuggling. Smuggling is actually the one that is killing our farmers because they don't pay taxes and prices are low and number two, productivity. But productivity is also a function of inputs. And inputs are also going up. For example, fertilizers, I've talked to our sugar farmers, and they're feeling the pinch because the fertilizers that they buy, the fuel that they buy to deliver sugar is also going up. So we also have to look at those input values now and see how we can lower it down through and then also input in terms of mechanization, buying those equipment, because they're all important to again, prices will go up. We have to find out how to lower down the cost of those machines.

Q: When you talk about, for example, fertilizers because that's very important, much of that is mostly imported?

SEN. WIN: Mostly imported. Right now, we don't have, as far as my knowledge is concerned, the majority of about 70 to 80% are imported. So again, if peso depreciates tataas na naman ang presyo and it contributes to the cost of production.

Q: We have the peso depreciating right now.

SEN. WIN: Most of our commodities are imported and this is one challenge that the new administration should look at. I know the President is quite knowledgeable about this energy self-sufficiency and food self-sufficiency. It's a long term activity but we have to start now and we need to lay down the foundations for us to be self-sufficient in these types of basic commodities.

Q: All right. You are of course going to be the presumptive chairman of the Ways and Means Committee. Will you let go of the Committee on Energy?

SEN. WIN: Yes.

Q: And then this is going to be when we say of course, this committee, we're talking about taxes. Are you going to propose any new taxes?

SEN. WIN: Well, Pinky, the Ways and Means Committee is concerned about revenues. And taxes are just a mode of increasing revenue. So, we will look at all facets. But I will start with administration and also integrity. Because it's hard to talk about increasing taxes, increasing fees, imposing new things if there is corruption, there is abuse, and there is inefficiency, in terms of administration, I've consulted with several tax experts this past few weeks, several businessmen, and still corruption and abuses are quite pervasive and prevalent in the business community, and we need to address this. I know it's very difficult to address it. But we need to have the mechanisms for our taxpayers to report. We need to have a mechanism for our businessmen to report and we have to make sure that erring collectors and erring government officials are held to account.

Q: Okay, it's good to start with that.

SEN. WIN: It's good to start with that. Again, going back to the basics, these are actually basics and common sense, but we need to review it before we even talk about imposing new taxes or imposing new fees.

Q: Okay, so that's the magic phrase before we impose new taxes or fees. So talking about taxes. So you are moving from the Department of Energy, basic education stays with you. But from the Department of Energy, which is again, I know, this is something you really studied. We've talked about this a number of times, but you're moving to the Ways and Means. We talked about possibly, ang sabi mo naman possibly taxing the rich some more?

SEN. WIN: Well, it's really like raising the contribution of the wealthy. Because we're following the concept of progressivity in which, if you are capable of contributing, I'll use the word contribution because everyone has the responsibility of contributing to nation-building and if you have the capability, a bigger capability of contributing more, then that should be looked at. On top of that, we're also looking at luxury goods and non-essentials. These are the things that the wealthy consume. And these are the things that are non-essential to everyone, to the daily life of a person. So we're also looking at that. Whether we will correct a significant amount or not, we're still in the process of computing that. But conceptually, we're looking at that concept.

Q: What if, if you want to tax possibly, the rich more what is considered rich?

SEN. WIN: Well, definitely, it will be more than what the normal person consumes and we will have income brackets for that. Off the top of my head, I don't have the number yet. We're in the process. It's a work in progress. We are in the process of finalizing that concept.

Q: Does that include you?

SEN. WIN: That includes me of course. Definitely, my income is above a normal person's income. So I guess to put it simply, if you're above a normal person's income, they are considered a well off individual.

Q: Baka kasi sabihin ng mayayaman, kami na naman. Alright, other issues that we need to discuss, other measures you're looking at to be able to generate more revenues for the government?

SEN. WIN: Alright, we're looking at digitalization. That is very important, both in terms of law and both in terms of oversight, like for example, Pinky, the customs modernization, a big portion of that law talks about automation and digitalization. But it's not being implemented. And we're gonna make sure that that's being implemented because if you don't go into automation and digitalization, you cannot curb corruption. As long as there's human intervention, human contact, there's always going to be corruption and temptation. So we need to fully implement automation in Customs as well as BIR and the rest of the government for that matter.

Q: What else?

SEN. WIN: The other one is, we're also looking at helping the MSMEs. The MSMEs are the backbone of our economy numbering to about a million. So we are looking at a tax rate that will catalyze them further, a tax rate that can help them navigate through these very complicated times and a tax rate that will encourage more entrepreneurs to come in. I've talked to MSMEs group and they have some suggestion of improving the tax rate to encourage more entrepreneurs to go into business and that's what we want, is to inspire others.

Q: Tell us more about it. How are you looking at it to make it more attractive to MSMEs?

SEN. WIN: Like example, the minimum tax rates. Again, it's a work in progress but I'll share the concept. We're increasing the minimum gross sales amount for them, so that more MSMEs will come in. And then number two, we're also filing some bills to make it easier for them to pay taxes, reducing the requirements because right now an MSME. If you own let's say a small store, you submit the same exact documents as the San Miguel's and the PLDTs of this country, the exact same documents. But obviously, because that's the regulation and the requirements. And I also found out that those documents are not being read by the authorities anyways because they're so voluminous. So we're making the lives of our entrepreneurs much easier by reducing the requirements, going to digitalization and also improving the tax rate so that they'll be encouraged to do business.

Q: Very important education. Latest talks with Vice President Sara Duterte and education secretary?

SEN. WIN: I will take off my Ways and Means hat and put on my basic education hat because it is equally important. Basic Education is the department that puts the foundations of our country in order to address the needs in the future. And I'm very happy with the decision of putting the second highest official of our land in basic education because we need reforms in our basic education system. If you remember, pre-pandemic levels our PISA was such a shocker. We were the last in reading, second to the last in Math and Science. And the World Bank came out just a few years ago, that our learning poverty went up to 90%, meaning 90% of our 10 year olds cannot read and understand the simple story and without reading, you cannot go up to the next level. So we need a lot of reforms and we need the political capital of the Vice President to implement those reforms and the Vice President has been quite open in terms of consulting various stakeholders on what to do and we actually had an opportunity to share my views on education and hopefully moving forward, we can implement the reforms that we needed.

Q: To be clear, are you still for K to 12 or not?

SEN. WIN: Okay. Just to give context, the satisfaction of our constituents to K-12 is getting worse. Now, almost half, 44% of our constituency are not satisfied with K-12. In 2019, 50% was satisfied, now it's only 39%. So the dissatisfaction is more than the satisfaction. But I'm not in favor of going back to the 10-year system. The whole world is already K-12, And there's many Filipinos abroad. When they apply for a job abroad, they will look, the countries will look at the basic education system. And if it's not in line with them, we might have problems with employment abroad.

Q: Kasi kulang para sa kanila because that's not the standard internationally anymore.

SEN. WIN: That's not the standard anymore.

Q: I would wanna bring that up, what you just mentioned a while ago that survey, comparing 2019 to 2022. So, basically, this is not a good survey because they are not satisfied. Dissatisfaction actually increased in 2022.

SEN. WIN: It's more than dissatisfied.

Q: Pero noong 2019, it was pretty. It wasn't bad at all. But it just turned worse in 2022. The question is why?

SEN. WIN: Well, it's also partly the pandemic, partly economic. If you look at the reasons why people are not satisfied, it is more economic. The added two years became an added cost burden for them for ordinary families. Additional uniform, additional books, additional baon. Of course if you have students studying in school you have additional costs to shell out. So the additional two years became additional costs for families but they don't see the benefit. When our senior high school graduates, they're still unemployed. They're still having problems going to college and they become unemployed. It's not the promise of K to 12 when we implemented the K to 12 a few years back.

Q: Wasn't that promise? Once you graduate from Senior High School makakahanap ka na ng trabaho. Here's the disconnect, when you apply for a job, people ask you, you must be a college graduate. That's a requirement. So how do you reconcile those?

SEN. WIN: You're absolutely correct. In fact, the government is guilty of that. If you look at the government requirements, we don't have a position for K to 12 graduates now even for us, the government. So the Civil Service Commission should look at that angle because we mandated our constituents to finish K-12. But the government will not hire K to 12, so there's a big disconnect. So other than that...

Q: And how can that be remedied?

SEN. WIN: First of all, the government should lead by example to remedy that. And then second, we cannot force businesses also to hire K-12 graduates if they feel they are inadequate. We have to make sure that our K-12 graduates are trained properly. I'll give a very specific example...

Q: But they are still nothing compared to another four years. Right?

SEN. WIN: Yes, but not every student has that luxury. So some of them would want to work right away. That's why in the two years of senior high school there's tech-voc. But the tech-voc is not in line with industry needs, the demand. And also the training is also inadequate. So we need to fix that.

Q: But what are you thinking, how do you plan to possibly solve that?

SEN. WIN: Okay. My take is we look at, among many things, we look at Senior High School. Senior High School is the level that we prepare our students to be employed or to move to college. We look at that and we look at the tech-voc track. We look at the academic track, we strengthen it. We should also include the industry to make sure that industry has a say in what skills or training our senior high school needs to undergo. I mean many things, but let's focus also on senior high school because that's the two years that we added.

Q: Okay, because that's important and there was a promise on that. That you could be hired after two extra years in high school. How to improve the K to 12. What are you looking at?

SEN. WIN: There are many things but I won't go into the details, but broadly, for K to three. We need to improve reading, reading is a big problem. And for us, it might be trivial because reading should be common sense, but it's not. In the countryside, reading is a big problem. We need to improve Math also at K to three because these are foundational skills that they need in order to move up. Number three, we also need to look at teachers both in terms of teacher morale, and both in terms of teacher education. So these are the things that we have to look at, among many things to fix the K to 12.

Q: So you talked about teachers, excuse me the salaries, 50% say they're underpaid. 11 is at 25,000 and I believe you are proposing to increase it from 11 to 13. And in which tanggalin na lang natin yung new salary grade because we don't understand that more 25,000 to 29,000. Is this something that the government can afford?

SEN. WIN: Well, of course if you ask the stakeholders they would want a higher pay but we also computed fiscal space. We found out that here in ASEAN among the 10 countries we are third to the lowest. The last is Myanmar and Laos. Indonesia is high. Their take home pay is about 50,000 to 60,000, they put a lot of premium there (take home ha?. Yes, the entry level take home pay. For us 25,000. We're actually at the lower end of the path. So by lifting the salary grade 13 to about 30,000, we're just moving to probably the mid-tier, not even the higher tier in the pack. So we're just making it competitive in the region and we also found out, Pinky, that our teachers are in demand in the region. Our teachers are not only teaching academics but also teaching English in Shanghai, in Hong Kong, in Malaysia, so they're being hired, pirated from here to teach English in those countries.

Q: So it's time to take care of them? Do you think these will be implemented? The increase in the salary grade of entry level? Entry level muna to?

SEN. WIN: Entry level muna.

Q: I think, this will be?

SEN. WIN: It's going to be challenging because I can see the macro point of view. My proposal will cost about 60 billion pesos. So it's not a small sum, but we're gonna fight for it.