Department of Clinical Epidemiology, College of Medicine, University of the Philippines –Manila, and Philippine Health Insurance Corporation
Raising domestic resources for Universal Health Care (UHC) is not easy. Many low and middle-income countries have very narrow fiscal spaces. When they attempt to widen that space, they face strong lobbies from affected industries and interests. And if they muster enough political will to overcome these, they might even face some more opposition of one of their largest trading partners. Fresh from winning the Nobel Prize, the EU is creating obstacles for one such country’s aspiration for UHC.
There is a national discussion going on in the Philippines on higher sin taxes these days. For those unclear what sort of sins I am talking about, the proposed measure aims to increase taxes on alcohol and tobacco products. Most of it (as much as 85% of incremental revenues) is ear-marked for financing UHC. The rest will support Filipino tobacco farmers to shift to other crops.
It appears quite straightforward to push this specific tax reform in a country which currently has among the lowest prices (mainly due to low taxes) of these sin products in Southeast Asia. The average price of a pack of popular cigarette brands is about USD 0.60 in the Philippines compared to USD 2.5 in Thailand. The WHO also strongly encourages increased taxes on tobacco to curb tobacco consumption.
When one looks at the burden of ill-health related to these products, the arguments seem solid. The smoking prevalence in the Philippines is nearly 30%. The Department of Health (Philippines) estimates that 10 Filipinos die from smoking related illness every hour. Alcohol appears the culprit in fifty percent of all traffic related injuries and death.
The latest obstacle to the passage of this tax reform took me by surprise. On the flight to Beijing, a Philippine newspaper headline read: EU warns vs. sin tax. I quickly brushed up on excise tax and tax reforms. And I waded into the proposed law and related news articles.
The recent opposition is reportedly coming from EU trade commissioner Karel De Gucht. The bones of contention appear (to me) to be distilled spirits and French champagne. The proposed law seeks to simplify the excise tax regime on alcohol and tobacco. For example it will adopt a unitary tax rate for fermented alcohol products (including beer) regardless of origin and alcohol content (hurray for Belgium!). But the bill maintains specific provisions on distilled spirits and sparkling wines/Champagne that set tax rates based on retail price bands of these products. The highest band of the tax rate is perceived to hit imported spirits and sparkling wine/Champagne. Many would label this progressive taxation; others (obviously including Karel De Gucht) might say that this is unfairly biased against EU products.
Is this a bluff from the Belgian famous for his sophistication and shrewd negotiating skills? I looked into what sort of cards he might have in his hands. It looks like he has quite a few, some less significant than others. The Philippines is a net exporter to Europe for goods and a net importer of commercial services from Europe but the trade imbalances are rather small at 1.1 and 0.1 billion euros respectively. There is a huge imbalance in terms of foreign direct investments favouring the Philippines though I doubt if EU regulators can really “control” the flow of private investments to the Philippines from the EU. De Gucht’s main gambit appears to be the partnership cooperation and free trade agreements, which can grant Philippine products more access to European markets while enticing more EU investments in the Philippines.
This incident raises serious doubts in my mind on “Health in all policies” that is promoted in some development circles as a European value. I recognize the diversity in European voices and the various interests. In this case, trade clearly trumps health and development.
A disturbing pattern may also be emerging if we consider the ongoing free trade negotiations between the EU and India. Activists and NGOs, including MSF and Oxfam, are afraid that the free trade agreement will prevent Indian generic drug manufacturers from producing life-saving drugs at very low prices. Will this spell the end of low-priced medicines flowing from India to the rest of the developing world?
In the growing global movement for Universal Health Care, it is a pity that Europe is becoming an obstacle for some countries from realizing their aspirations. And it’s yet another reason to question the wisdom of the Norwegian Nobel Committee this year…
If there is anything that Europe can teach the rest of the world, it is how to tax their citizens. Several European countries, including France, Belgium and some Scandinavian countries manage to capture through taxation close to 50% of GDP as income for the State. High tax rates, though not necessarily popular, is an essential basis of these welfare states and their accessible high-quality social services.
Many middle-income countries still have very low tax rates. They absolutely have to raise more domestic income if they want to develop social services including health services and more pro-poor measures. It is a pity that Commissioner Karel De Gucht does not help the Philippines learn useful lessons from his own country’s experience. He should enthusiastically support our attempt at raising sin taxes instead of trying to negotiate it down.
Finding ways to finance UHC is not as easy as it looks. For Filipinos, it may mean standing up to a hard-nosed Belgian.