While an outgoing economic official advised him not to close the door entirely to the idea, a militant think tank urged president-elect Sen. Benigno Simeon “Noynoy” Aquino III to resist “pressures” to impose new taxes.
IBON Foundation made the advice, noting that Aquino has not made yet a “strong progressive position” to address the country’s fiscal problems.
“Unfortunately there are signs that Aquino will continue the [Gloria Macapagal] Arroyo administration’s approach of raising taxes, selling public assets, and squeezing spending including on social services– while consistently making debt repayments,” IBON said in a statement on its website.
“The International Monetary Fund (IMF), finance officials, creditors and private sector economists, including the academe, have been vocal about new and higher taxes to deal with the national government (NG) deficit. Among others these include raising the value-added tax (VAT) from 12% to 15% and so-called sin taxes on cigarettes and alcohol,” it added.
While IBON welcomed Aquino’s statement that he will prioritize improving tax collection efficiency, this may “take time” even under the best of circumstances.
“Sen. Aquino’s recent statement that he will improve tax administration and collection efficiency is welcome, but even in the best circumstances this will take time to materialize. His declared openness to raise taxes however is cause for concern given the past administrations’ bias on relying on relatively easy to collect but regressive consumption taxes over basic fiscal reforms. He has also conspicuously avoided articulating a stand on burdensome debt payments,” IBON said.
Aquino earlier said he would prioritize improving tax collection before imposing new taxes, even as he lamented that tax collection efficiency went down 12 – 13 percent from a high of 18 percent under the Ramos administration.
Also, the group said the rise in the deficit to P298.5 billion or 3.9 percent of gross domestic product (GDP) in 2009 from P68.1 billion (0.9 percent of GDP) in 2008 was the steepest the country has ever seen and indicates the severity of the problem in 2010.
If current revenue and spending trends continue, IBON initially estimates a deficit in 2010 – an election year – of P309 billion to as much as P374 billion.
The low estimate assumes revenue effort recovering to the average over the long 2000-2009 period and the high estimate of no improvement from 2009, it said.
IBON said the strategy that an Aquino administration chooses to deal with the accelerating fiscal crisis will signal how “reformist” it is going to be.
According to the group, the record fiscal deficit under the Arroyo administration in
2002 ushered in a long period of declining spending on social services amid soaring debt payments and the implementation of the regressive Reformed Value Added Tax (RVAT) in November 2005.
The group said a genuinely reformist approach to the fiscal crisis is possible.
“On the revenue side this means a progressive tax regime that demands more from those with the capacity to pay (e.g. corporations and high income individuals) and unburdening those with less to begin with. Lifting the RVAT is a crucial first step, followed by increasing taxes on large corporations and high income individuals, reducing fiscal and other incentives given to foreign investors, and resuming collection of tariffs particularly on imports used chiefly by foreign export-oriented interests,” it said.
On the expenditure side, this means easing up on debt payments by subjecting these to more sensible prioritization (e.g. stopping payments on onerous and odious debts, negotiating better credit terms, and giving preference to creditors more amenable to the country’s development efforts), cutting back on high military spending, and having a clear program on fighting large-scale corruption that causes gross leakages of public funds.
Open doors to new taxes
Earlier, Finance Secretary Margarito Teves suggested that the incoming government should not close its doors to sin taxes and even raising VAT, if it wants to raise much-needed revenues to fund its projects.
Teves said such taxes could be part of a “Plan B” if its initial programs to raise revenues fail.
“Isa doon nakakatulong ang tax on alcohol and tobacco products. Maraming bansa nagta-tax niyan mas malaki pa kesa dito sa Pilipinas na pino-propose natin. Makaka-add ng P20 billion sa first year at pataas ng pataas yan over time (One of the things that can help would be taxing alcohol and tobacco products. Many countries impose much higher taxes on these sin items than we do. This can raise over P20 billion in the first year and higher over time),” Teves said in an interview on dzRH radio.
He said a second would be to simplify the taxes paid by self-employed individuals.
On the other hand, a third and controversial measure would be to increase VAT, but in such a way that personal at corporate income taxes are lowered.
Teves said such a VAT system must not be regressive and must provide exemptions for the poor.
Otherwise, he said failure to raise the needed revenues may force government to borrow from other countries or from local institutions.
He added the government must be able to institute reforms in the financial system within the six-month to one-year “honeymoon period” when the public will accept such changes.
Meanwhile, Teves said the incoming government may have to put on hold a balanced budget until about 2016, as it needs to spend on infrastructure, schools and social services.
“Kailangan ng bansa ito para makadagdag ng trabaho para ma-improve ang capacity natin umunlad tayo para tulad ng ibang bansa sa paligid natin, tulad ng Singapore, Indonesia, Malaysia, para makatulong sa atin (We need to generate additional jobs to improve our capacity to progress and catch up with our neighbors such as Singapore, Indonesia, and Malaysia)” he said. — LBG, GMANews.TV