Any proposed changes should not be discriminatory, hence must apply to other non-contributory systems like the judiciary, prosecution service, and constitutional commissions. Also, the diminution of pension benefits will violate the Constitution. These are among the talking points of the Position Paper of the PMA Class of 1971, Inc., discussed in further detail.
REFORMING THE MUP PENSION SYSTEM:
Talking Points
A Position Paper of PMA Class of 1971, Inc.
EXECUTIVE SUMMARY
Part I: On Proposed Changes to the MUP Pension System
1. Any proposed changes should not be discriminatory, hence must apply to other non-contributory system like the judiciary, prosecution service, and constitutional commissions;
2. Any changes to the system must not only be financially sound but it must also consider their behavioral effects on the morale of the retirees, those in the active service, and new entrants;
3. The proposal to make the MUP pension system contributory is inconsistent with the intent of the Philippine Constitution; and
4. Diminution of pension benefits will violate the constitution and unlawful based on legal precedents established by the Supreme Court.
Part II: On Issues Raised by Secretary Diokno and the National Treasurer
5. Due to the nature of their work, the MUPs deserve higher pension than what other non-MUP retirees are getting;
6. The logic that MUP pension will remain over that of MOOE and CO expenses for a long time is flawed;
7. We did not find any adequate proof to show that the MUP pension budget is ballooning and will lead to a fiscal crisis;
8. We believe the P9.06-trillion liability of MUP pension, and the corresponding P848.32-billion appropriation yearly premium to pay for borrowed loan, is misleading;
9. That the ballooning MUP budget will worsen our deficit is doubtful based on our own study; and
10. That the MUP pension budget is leading us to more debt has no sufficient basis.
PART III: Incidental Issues
11. We become a part of the solution, not a problem, by agreeing to indexing pension to inflation instead of to current pay; and
12. There is government neglect on supporting the operational and capital outlay of the military as we lagged behind in military spending in comparison to our neighboring countries.
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REFORMING THE MUP PENSION SYSTEM:
Talking Points
PART I: ON PROPOSED CHANGES TO THE MUP PENSION SYSTEM
1. Any proposed changes should not be discriminatory, hence must apply to other non-contributory system like the judiciary, prosecution service, and constitutional commissions.
It is our position that any proposed reform of MUP pension should be applied to other non-contributing agencies like the judiciary, prosecution service, and constitutional commissions, whose pension pay, including all allowances, are indexed to current pay at 100 percent rate. Otherwise, the proposed changes to the MUP pension system, but not applied to the other non-contributory government agencies, will be discriminatory against the more than 600,000 MUPs, active and retired. “Dapat All!” is the new battle cry. “Dapat lang. Kung binago ang original, dapat pati lahat ng mga copy cats [Changes must also apply to copy cats.].” The non-contributory system used to be exclusive to the military only because it is a profession involving risk of life.
Some critics counter that justices, prosecutors, and constitutional commissioners are few in number. Our reply, “Since when NUMBERS became an exception to the Rule.”
Under the principle of “Equality before the Laws”, if ever soldiers and policemen will be required to contribute for their pension, just like any other government employees and private worker/laborers, then this government MUST NOT require soldiers and policemen to work during holidays or not to serve MORE THAN eight hours a day, five days a week and on call 24/7 without just compensation the likes of overtime and holiday pays, night differentials, etc.… akin to what any worker in this country is receiving when asked to render services beyond what is set by laws. We know the impossibility of this contention but just for the sake of argument, if ever they insist, the government should make the profession of arms devoid of risk of loss of life and limb just like any other government or civilian works or jobs to make things equal.
2. Any changes to the system must not only be financially sound but it must also consider their behavioral effects on the morale of the retirees, those who are in the active service, and new entrants.
It is our belief that the merit of any proposed change must be assessed not only on the basis of its financial soundness but also on how it will impact the behaviors of the retirees, those who are in the active service, and new entrants. More importantly, it must address how the proposed change will affect the role of the AFP and PNP retirement systems in shaping and managing the right size and quality of the organizations.
Will it affect the morale of the retirees who consider pension as a reward for their services in a profession involving the risk of loss of life and limb?
Will the change affect the behavior of those in the active service towards rethinking of staying in the service as he finds better opportunity in civilian jobs? In fact, in the latest news, Senior Undersecretary Galvez of DND said around 70% to 80% of enlisted personnel will seek retirement early if they find that the proposed system will be disadvantageous to them. The PNP claimed that 65% of their police will do the same. If this will happen, it will dangerously lessen the size of the AFP and PNP.
Will it affect the behavior of new entrants such as changing their minds in pursuing the career in the AFP and PNP thus depriving us of top-quality new entrants?
If ever the study will show that the proposed reform in pension system will negatively impact the right size and quality of the MUP, especially the AFP and PNP, then by all means let us not pursue it. It will be costlier to correct the mistake as it will call for increasing the pay of MUP personnel to lure back those who left.
Lest we be forewarned, the effect of reduction in cost is immediate, but its known impact to behaviors takes a long time to assess. It is on this basis that we urge the decision makers to study any proposed change very carefully to avoid any hard-tocorrect unforeseen effects which could be detrimental to the organizations in the future.
3. Proposal to make MUP pension system contributory is inconsistent with the intent of the Philippine Constitution.
The proposal to make MUP pension system contributory to be applied to those in the active service and new entrants is inconsistent with the intent of the Constitution. Pursuant to Section 7, Article XVI of the 1987 Constitution of the Philippines, funds for the benefits of veterans shall be provided by the government. Such benefits include, among others, AFP retirement pension, old age pension and total administrative disability pension which have all been funded by the Government. Our pension is a payable of the National Government for our past services that have kept our country an enduring republic and it is all guaranteed by the Constitution. [Any effort contrary to this provision is therefore unconstitutional.]
In the US military, the military retirement system is a government-funded, noncontributory, defined benefit system that has historically been viewed as a significant incentive in retaining a career military force.
The above provision of the Constitution is consistent with the military’s noncontributory pension system that has been in effect since 1935 pursuant to Commonwealth Act No.1 (CA 1). The non-contributory system and retirees pension benefits are based on valid and strong arguments. The military career is a noble profession of arms. This calling is unique from all other professions, as it calls for those who pursue it to defend our country even if it means sacrificing their lives. The Filipino Soldiers Code of Conduct calls for the soldier to fight and die for the country. Again, in the US the non-contributory system is considered a gift by the American people to their military who offered to give their lives in the defense of the country.
The death of at least 268 AFP soldiers in the early phase of the secessionists war in Mindanao, and at least 309 AFP and PNP troopers in the infamous Mamasapano Clash in 2015 and the Battle of Marawi in 2017 is obviously enough proof that the sacred oath of the AFP, PNP, and for that matter PCG (performing the duties same as the military in time of war) to die for the country is real and not a mere statement.
Our soldiers’ sacrifice could be even more appreciated if we consider what they were able to achieve. First, they were able to fulfill their mandate of protecting the people, preventing crimes, fighting against drug, defending our territorial integrity, and sovereignty that goes with securing our democratic way of life and institutions; they have prevented the loss of Central Mindanao in the early 1970s Secessionist War; and they have halted the loss of more lives and further destruction of properties in Mindanao and other hotbeds of insurgency. And they have thwarted attempts of CPP/NPA to remove our democratic system of government and replace it with the communist form of government. All of these accomplishments were achieved even at the great sacrifice of our soldiers and also of their families who were left in their homes to take care for themselves while their husbands are far away working deep in the jungles and mountains in the hotbeds of insurgency and secession.
The AFP and PNP personnel have too much on their plates. Aside from internal security operations, the AFP is engaged in national defense (including the West Philippine Sea), UN missions, disaster relief operation, and search and rescue. While the PNP is tasked to enforce the law, prevent and control crimes, maintain peace and order, and ensure public safety and international security with the active support of the community.
It therefore goes without saying that the arguments why the MUPs should be considered as special and unique from among the non-military retirees are strong and unassailable and hence deserving of rewards and a non-contributory system towards their pension. This is exactly what Chief Presidential Legal Adviser Juan Ponce Enrile had in mind when, during a radio interview, he expressed total disagreement with said proposals of Diokno. He mentioned “Iba ang trabaho ng sundalo eh [The mandate of the military is different]” and that the soldiers “are gambling their lives to protect the country.” His advice: “Kung ako si Secretary Diokno, dahandahan ako diyan [If I were Secretary Diokno, I’ll slow down]. That is very explosive.”
In the news lately, defenders of government proposed change are still insisting on applying contributory system to active members and new entrants despite the fact that it is contrary to the spirit of the relevant article of the Constitution. We contend that under the same principle of “Equality before the Laws“ … if ever soldiers and policemen will be required to contribute for their pension just like any other govt employees and private workers/ laborers, then this government MUST NOT require soldiers and policemen to work during holidays nor to serve MORE THAN eight hours a day, five days a week and on call 24/7 without just compensation the likes of overtime and holiday pays, night, etc., akin to what any worker in this country is receiving when asked to render services beyond what is set by laws.
4. Diminution of pension benefits will violate the Constitution and unlawful based on legal precedents established by the Supreme Court.
We have legal basis to support our position that pension benefits must not be diminished. As Section 8 Art XVI of the 1987 Constitution states, “The State shall, from time to time, review to upgrade the pensions and other benefits due to retirees of both the government and the private sectors.” While this is a provision of general application, the operative word is “upgrade” not reduce or diminish. In the labor sector, workers contend that their vested right of non-diminution of their pension benefit is guaranteed by Article 100 of the labor code which states – “Nothing in the Labor Code shall be construed to eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the time of its promulgation.”
The principle of non-diminution of benefits of the labor sector is actually founded on the constitutional mandate to protect the rights of workers, to promote their welfare, and to afford them full protection. Under this principle, employees have a vested right over existing benefits voluntarily granted to them by their employer. Thus, any benefit and supplement being enjoyed by the employees cannot be reduced, diminished, discontinued or eliminated by the employer.
We believe that this argument can be applied to the AFP and PNP too since there exists an employer-employee relationship between government and government employees. We can invoke the principle of equal protection under the law which is in fact contained in Article 3 Bill of Rights of the 1987 Constitution which states: “No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws.”
Our vested right of non-diminution of our current pension pay has legal precedents. The Supreme Court decision on April 10, 2019 on G.R. No. 190410, Quirico D. Aninon, Petitioner vs Government Service Insurance System decided in favor of the petitioner regarding refund retirement benefits previously received and to include the years of service rendered in his previous government employment. The SC ruled: “This interpretation of the pertinent GSIS rules and regulations is supported by the basic principle that social legislation, such as retirement laws, must be liberally construed in the retiree-beneficiary’s favor. C.A. No. 186, P.D. No. 1146, and R.A. No. 8291 and its Implementing Rules were enacted ‘to provide for the retirees sustenance and, hopefully, even comfort, when he no longer has the capability to earn a livelihood.’ Thus, we must interpret these laws in a way that protects and enhances a government employee’s quality of life after devoting his prime years to the civil service.”
In another Supreme Court ruling involving retirement benefits, GSIS v De Leon Case, which favored the retiree, the SC instructively declared that:
“The inflexible rule in our jurisdiction is that social legislation must be construed in favor of the retiree because their objective is to provide for the retiree’s sustenance and hopefully, even comfort, when he no longer has the capability to earn a livelihood. The liberal approach aims to achieve the humanitarian purposes of the law in order that efficiency, security, and well-being of government employees, may be enhances[d]. Indeed, retirement laws are liberally construed and administered in favor of the persons intended to be benefited, and all doubts are resolved in favor of the retiree to achieve their humanitarian purposes.”
PART II: ON ISSUES RAISED BY SECRETARY DIOKNO AND THE NATIONAL TREASURER
5. Due to the nature of their work, the MUPs deserve higher pension than what other non-MUPs retirees are getting.
Sec. Diokno started this issue by claiming that compared to SSS and GSIS members, the MUP pensioners have the highest average monthly pension at P40,000. We are wondering why among those government agencies whose pensions are noncontributory, he excluded the fourth group: members of the judiciary, prosecution service, and constitutional commissions whose pensions are the highest and are estimated to exceed P200,000 – or five times more than that for the MUPs.
Our argument remains the same. That the nature of our work while we were in active service, unlike the non-MUP retirees, involves the risk of loss of limbs and lives. Because of this, we have unarguably the highest rate of casualty and morbidity while performing our duties. This is what makes the AFP and PNP pensioners unique from other civilian position retirees, hence deserving of honors and higher pension.
Why do we need to have higher pension benefits than what the non-MUP civilian workers are getting? It is because the retirement system has a significant role in retaining the size and quality of our current forces especially that of the AFP and PNP which are performing critical functions for the government.
Our pension should not be seen as just a mere welfare payment to an unproductive group of retirees. It should be seen as a vital component of an incentive package that would help entice promising and talented young high school graduates to take up the profession of arms despite the risks involved in such a choice.
We have to follow the long way to bring home our point better. In 1968, Gary Becker (Nobel Laureate, 1992) published a groundbreaking study: The Economics of Crime and Punishment. In his behavioral model, Becker posits that in deciding to commit a crime, one would weigh the potential largesse from the crime multiplied by the probability of his getting caught, against his potential lifetime stream of lawful income.
This calculus could be applied to a promising high school graduate mulling to enter PMA and in the process takes on the risk of soldiering inherent to the service. He would compare his lifetime stream of potential income from a civilian career minus the expenses involved in getting a college degree, against the lifetime stream of income and benefits he would receive if he chooses to join our ranks, multiplied by the risk of dying or being injured on the job. The benefits would necessarily include the free education, board and lodging, uniforms and salary of a cadet. It should also include the pension that he would receive when he retires.
The same incentive works on those who are in the active service. Their behavior to remain in the active service will affect the right size of MUP organization that we have. A pension benefit that is high will lead him to remain in the service because he is assured of comfortable living when he retires from the service. Anything less than that, he would seriously consider pursuing a civilian career. If those leaving are good assets, the quality will suffer aside from reduction of its size.
That the pension must be substantial to achieve the desired impact is therefore imperative.
6. The logic that MUP pension will remain over that of MOOE and CO expenses for a long time is flawed.
The government technocrats presented the argument that without doing anything (status quo), we will be heading towards a state where – MUP pension spending will remain over and above the Maintenance and Other Operating Expenses (MOOE) and Capital Outlay (CO) and even at an increasing rate for the next 20 years. The CO referring to acquisition of vehicles, aircraft, ships, armaments, tanks, water transport vehicles, military and police vehicles, and other items related to increasing the assets of AFP and PNP.
We are reminded that years ago during the term of former President Benigno Aquino III, he cited in his two SONAs the statistics that by 2017, MUP pension will overtake salary of those in the active service. But during the Senate hearing in December 2017 regarding Joint Resolution Nr. 1, former Senator Panfilo Lacson called it a “myth” because in 2017, military pension was just about half of Personnel Services (PS) budget for the military in active service. DBM representative’s reaction? Deafening silence. These days we are hearing the same warning. But the tactics has changed. After failing in their first attempt, they shifted to comparing our pension to the MOOE and CO (capital outlay). We have a feeling that this assertion could be another myth too.
The chart presented by government decision makers in support of their contentions has two components. First is the MUP pension projected line through the 20-year period starting from a base year figure which is derived from actual spending data; and the second is MOOE and CO projected line for the same period that started also from the same known data of the base year.
Let us start with the MOOE and CO line. It is our belief that the base year figure for MOOE and CO, as presented by the National Treasurer, is way too low and this error is compounded as succeeding years based its projection on the low value. The value of the MOOE and CO is considered variable (unlike the MUP pension which is fixed by legislation) since the amount appropriated for it depends on how our decision makers perceived the amount to be allotted for it. Unfortunately, the current thinking of our decision makers is that the defense spending is less important compared to those budgetary items directly impacting growth. The following graphs show the fact that indeed our military spendings (and so the base year value) are way below the military spendings of eight other countries which we selected.
This just goes to show that the MOOE and CO figure for the base year is a misrepresentation (actually the correct term is underspending) of what the MUP, particularly the AFP, should have gotten. That there is shortfall is apparent. That shortfall, per our study, is about P108 billion which is the amount needed to increase our military expenditure from 3.82% share of total government spending to 6.22% matching the world average. Sadly, we would like to highlight the fact that such apparent neglect of the government in spending for the MUP especially the AFP, if it will remain uncorrected, would be carried over for the next 20 years.
The above argument is sufficient to show that MOOE and CO of MUP will be over and above the MUP spending line if the annual shortfalls are added to CO. The gap becomes even wider if we go over the MUP pension line and its base year figure, which we will do next.
It is not so clear to us as to the value used by the National Treasurer for MUP pension. But it is our belief that the value used is the entire budget for MUP pension and gratuity item which has so many components to which the MUP pension is just one among other items like civilian personnel pension, civilian retirement gratuity, civilian terminal leave, MUP pension veterans, MUP retirement gratuity, and terminal leave for MUP.
We have reason to doubt the figure. The NT claims, in PDI news report on May 21, that “payout” for MUP pension in 2023 is already P216 billion. The truth is that MUP pension budget for 2023 is only P128.66 billion. The overstated value (P216 billion) is used to project the MUP pension line. So that by 2030, it will become P537 billion and P1.5 trillion by 2040. If the correct value, which is P128.66 billion, is used, the projected value for MUP pension for 2040 is P962.42 billion only not P1.5 trillion; or lower by 36%.
All the above things considered, we believe that the MOOE and CO projected line will be above the MUP pension line. We have all the reasons to believe that the claim by the NT is therefore another myth.
7. We did not find any adequate proof to show that MUP pension budget is ballooning and it will lead to fiscal crisis.
Based on the statistical data on Philippine Military/Defense Budget below gathered by Retired Vice Adm Delos Reyes PMA ‘71, the AFP pension is not ballooning as claimed by Secretary Diokno. In here, he calculated the AFP pension as percent of the national budget. As indicated the AFP budget has not even increased greater than 1.5%.
Furthermore, take a look at the following graph (GAA appropriations data from Google Search) which shows the yearly GAA appropriations from fiscal year 2015-2023 versus the MUP pension budget for the same period. On the average, during the period covered MUP pension share to national budget is only 2.3%. It supports our contention that there is no clear indication that the “elephant in the room (MUP pension)” as percent of national budget is ballooning or could cause any sizeable impact on the economic problem the nation faces.
When Diokno said that our ballooning pension will lead our economy to a fiscal cliff, we don’t think he even himself believes it. Anyway, to show that the pension budget will not be able to bring us to the brink of the fiscal cliff, we proceeded to add to the table above the budget for the infrastructure projects of the DPWH and compare MUP pension to it. Just to emphasize that there are other bigger budgetary items that could impact the fiscal crisis. Let us take a look at the following graph showing how small is the share of MUP pension budget to that of the entire budget and infrastructure budget of DPWH as well. Apparently, any fiscal cliff cannot come from budgetary item as small as that of MUP pension.
Our position is that the massive government spending in previous years with revenue lagging is not caused by us but rather brought by the covid-19 pandemic and massive infrastructure projects. So, we should not be faulted for the crisis, if ever there is already one.
8. We believe the P9.06 trillion liability, and corresponding P848.32 billion appropriation yearly premium to pay for borrowed loan, is misleading.
Government officials led by DOF Secretary Benjamin Diokno have relied on the 2019 report of the GSIS study citing it as a reason for the need to reform the MUP pension system. GSIS, assuming status quo in the system, presented the P9.6 trillion one-time seed fund to perpetuate the MUP pension system and the annual GAA appropriation of P848.32 billion for 20 years to pay as amortization to borrowed funds. These figures, per se, when presented without qualification would wow the public.
In 2021, GSIS had lowered the based scenario projection of P9.6 trillion figure by 40% after they reduced the rate of salary increase from 10% to 5% (new base scenario). Based on the latest figure, government GAA share of annual appropriation for 20 years to fund the loan premium is reduced also by 44%. Despite the change, the proponents of reform, who now turn on to social and news media, refused to alter their figures because the bigger figures suit more their needs to demonize the MUP and to insist the reform on the pension system.
There is another interesting finding worth mentioning. The study shows that if you change the current indexation rate (85% to 90%) to half or 50%, one-time fund goes down by 50%. By decreasing the rate of indexation to our recommended rate of 5% to inflation, not current pay, we expect bigger reduction in the one-time fund requirement and therefore the corresponding reduction in the government annual share of appropriation to pay for the amortization. The opinion of former Senator Panfilo Lacson is that if we can initially reduce the annual item in the GAA to something like P200 billion without diminishing the monthly pension of individual retirees, it will be sustainable.
9. That the ballooning budget will worsen our deficit is doubtful based on our own study.
We sincerely believe that it’s not the ballooning MUP pension budget that is causing the deficit. The following table we created based on the data gathered from the Bureau of Treasury will illustrate a picture of the government deficits from 2018 to 2022:
The Bureau of Treasury explanation to the year-by-year changes in deficits are as follows:
* In 2022, the decline in deficit was due to higher government revenues. The decline happened despite the rise of government expenditures to P5.2 trillion, up by 10.35% from P4.7 trillion a year ago.
* In 2021, expenditure grew 10.6% vis-à-vis 5.24% increase in government receipt, The budget deficit was inflicted by huge prolonged expenditures to fight the pandemic amid weak revenue collections.
* Deficit in 2020 was more than double the previous year P660.2B. The wider fiscal gap for the year reflects the 11.31% year-over-year (YoY) growth in public spending combined with the 8.97% reduction in government receipts resulting from the economic impact of the Covid-19 pandemic.
* In 2019, the robust disbursement in December which surged by 57.83% from a year ago bringing the acceleration of government spending to 11.42% growth. In particular, disbursements for the month of December surged by P181.1 billion from the same period last year to reach P494.4 billion back by strong
infrastructure spending of the DPWH, implementation of social protection programs and services of the DSWD, and personnel services expenditures with the grant of Services Recognition incentive, payment of pension and retirement benefits, as well as requirements for the creation and filling of positions in various agencies.
* Based on the report of the Bureau of Treasury, Philippine Star reported on its website on February 22, 2019 that the deficit in 2018 rose to 59.2% as a result of ramped-up spending in public infrastructure [Build, Build, Build program], social protection, and Personnel Services (PS) due to pay increases for both civilian, and military and uniformed personnel, as well as the improved fill up rates of teaching positions in the Department of Education (DepEd), disbursements surged by 21 percent from last year’s level.
The Bureau of Treasury’s Report on yearly deficits is very revealing. The claim that the MUP pension ballooning budget will cause fiscal collapse has no basis. Expenses to fight the Covid-19 pandemic and DPWH disbursements ate up huge chunks of the expenditures in the past years which contributed immensely to huge deficits. This is especially true in 2020 when deficit ballooned to P710B or by 51.8% due to covid-19 pandemic; and in 2018 when budget expenditure rose due to wide infrastructure program under the “Build, Build, Build” program of former President Duterte, resulting to 59.2% deficit. Indeed, there are bigger mammoths in the room that need more attention than the MUP pension system.
We also ask our economic managers to stop floating around their propaganda that we are causing the huge deficit problem of the government. Instead, they should turn their attention to various studies concluding that the systemic failures in the government are adversely affecting government expenditures and revenues – two important components of sound fiscal policy. First, the Research, Education, and Institutional Development (REID) Foundation said that 15% to 35% of project expenses went into “other costs of doing business” or what they call facilitation fee. Second, the study of the Deputy Ombudsman asserting that about P700 billions are lost annually due to corruption, which is big enough to wipe out the yearly budget deficits.
10. That the MUP pension budget is leading us to more debt has no sufficient basis.
The claim that MUP budget is causing increase in our government debt has no sufficient basis as the figure below will show. MUP pension budget, a portion of GAA “Pension and Gratuity” budget, is a miniscule amount of the yearly government debt per year. Beginning 2017, the MUP pension budget is only 10.8% of yearly government debt average from 2017 to 2022 (i.e., assuming that the entire MUP budget is financed by borrowings alone). Obviously, floating around that the MUP pension budget is responsible alone for the huge debt is very unfair since there are other bigger budgetary items responsible for 89.2% of the
debt such as Covid-19 expenses and massive infrastructure projects (2020, 2021, 2022). Apparently, the government is barking on the wrong tree.
PART III: INCIDENTAL ISSUES
11. We become a part of the solution, not a problem, by agreeing to indexing pension to inflation instead of to current pay.
We do not see ourselves as a problem. We recognize the budgetary problems we are facing today and the immediate future. By the way, this is not the problem of the Philippines alone but also of other developing countries of the world especially at this time of the pandemic. We are also aware that our budgetary problem today is brought about mainly by the extraordinary expenses related to war against covid-19 and massive government infrastructure projects to propel development, and less by the increasing MUP budget cost.
Still, we are not numb. In fact, we agree to the proposal that all non-contributory systems shall be indexed to current inflation rate (no limit) or limit to 5% percentage a year similar to what Congressman Salceda’s Ad Hoc committee stand at 5% annually for 10 years. We believe our proposal is acceptable to the government because of the following:
* It will prevent spiking of annual budget when pay adjustment is high such as in 2019 when it suddenly increased by 73 percent. (Very likely, budget for non-MUP also spiked at higher annual rate from 2016 to 2019);
* It is more rational because the retired are stuck with their pension and it will compensate for increases in prices of medicines, foods, etc. Whereas, those in the service will be entitled to pay adjustments, increase in allowances, and higher pay due to promotion;
* It will limit the ever-increasing gap between MUP and non-MUP pension (maximum 100 percent of prevailing pay and allowances); and
* It has been successfully practiced in the USA, world’s richest country. Pension of all federal employees including the military are indexed to inflation. This proposal has more substance. As per initial results of the GSIS actuarial study, it shows that by reducing from full to half the rate of indexation of pension to current pay, one-time cost of funding for a creation of a government-owned and controlled corporation to perpetuate the pension system is reduced by almost half and subsequently the reduction in the government annual appropriations to pay for the cost of borrowing funds.
Decreasing the rate further to 5%, we expect substantial reduction in appropriated funds for amortization of the loan. It just good to know that combining several scenarios could easily bring down the government share of government appropriation to about P200 billion annually, which is sustainable.
12. There is government neglect on supporting the operational and capital outlay of the military as we lagged behind in military spending in comparison to our neighboring countries.
Based on our study, initial indication is that there has been underspending particularly on capital outlay of the military. Consider the following statistics:
* Military spending has continually increased in nominal value from 1960 to 2021; however, it has also continually gone down in terms of percentage of GDP from 1.78% in 1960 to 1.04% in 2021.
* From highest to lowest, the Philippine military spending in percentage of total government spending in 2021 ranked No. 91 out of 142 countries at 3.82% which is way below the average of 6.22%.
* Likewise, Philippine military spending in percent of GDP ranked No. 108 out of 145 countries at 1.08%. The average for all countries is 1.87%.
* The AFP Modernization got only a 1% share of the unprogrammed appropriations for 2023 showing the lack of importance and priority given to defense spending (see chart below). It shows lack of appreciation of the important role of defense for national growth and development.
We also compare our government’s military spending to that of our neighbors.
We conclude that the Philippines has been lagging our neighbors in military spending in terms of % share to national budget, military spending as percentage of GDP, and per capita military spending.
We believe that the root of our problem can be traced to the kind of thinking of our economic managers and legislators who believed that we should focus the government limited resources on projects with direct impact on growth and productivity like infrastructures, roads, bridges, education, and poverty alliance program, which share much higher percentage of government expenditures. The AFP and PNP capital outlays are less productive thus ended up low in priority. What they refused to see is that government military and police spendings are indispensable for faster economic growth and development to thrive.
Singapore, our neighbor, thought differently from that of our government thinkers as they spent 30% of their budget for defense, security, and diplomacy in 2021 (relative to ours, 3.82%). Their mindset is inspired by great thinkers like their former Prime Minister of Singapore Lee Kuan Yew who served as leader of that nation state from 1959 to 1990 because of his outstanding feat of transforming a small and poor country to one of the most modern countries of the world. Lee believed that:
* “… that if we are to continue as democracy, then it is far better for us to have a well-paid, well-equipped army, small and compact;”
* “Four-hundred thousand ill-paid and not very well-equipped army presents a political problem of immense dimensions;” and
* “Without a strong economy, there can be no defence, [without] defence, there will be no Singapore. It will become a satellite, cowed and intimidated by its neighbours.”
We felt the impact of the government’s complacency to attend to the needs of the military, despite the threats from within and outside, as our ill-equipped soldiers have to pay the high price with their lives and limbs in gallantly fighting the secessionists in the 1970’s, the CPP/NPA in the 80’s, and thereafter the terrorists. Now, despite current acquisition to modernize the PN and PCG, we are still barely capable of protecting our national interest in the West Philippine Sea.
Sadly, our economy has not been able to grow to its full potential, especially in the countryside, because of long time problem of insurgency. The ill-paid and not very well-equipped military lessen their effectiveness to fight them. We cannot also underestimate the additional morale problem brought about by the lingering pension reform being proposed by the government.
We firmly believe, therefore, that President Bongbong Marcos should make it his legacy to finally end the insurgency. The country will be eternally grateful to him if he manages to do so. We believe the President can accomplish this by:
1. Funding the operational requirements of the AFP/PNP to make us at least at par with our neighbors. Based on our study, the government would have to infuse an additional P108 billion if only to elevate our 3.82% military spending that already includes pension in order to match the worldwide average of 6.22%.
2. Ensuring the morale and welfare needs of the right size and quality of armed forces are well-taken care of by:
a. Attending to the prolonged delay in adjusting the military’s pay in four tranches, equivalent to that already granted to all civilian government personnel from 2020 to 2023 pursuant to Salary Standardization Law of 2019 (RA 11466);
b. Promoting effort to attract the best and the brightest among the youth;
c. Emphasizing that for promising high school graduates to take on this heavy burden along with the risk of death and injury inherent in soldiering, the stream of lifetime compensation and benefits that he could look forward to should at least be comparable to what a civilian career could offer;
d. Enhancing the motivation of our current soldiers/police by offering stream of pension benefits that they and their families could look forward to a comfortable life even after retirement, if he is one of the lucky ones to have reached that age; and
e. Adopting the argument that a soldier’s pension should not be viewed as an unproductive welfare dole out to soldiers who passed their prime but as important part of a whole package of incentives to convince the very best of our youth to take on the highly important but risky task of soldiering to help ensure the security of our nation and people in order to allow our communities to prosper in peace.
At the end, we think we have solidified our position that underspending in defense is detrimental to our national security and economic growth and development. Hence, our recommendations to the President.
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