Aquino urged to resist pressure for new taxes

May 19, 2010

by superadmin

A genuinely reformist approach to the fiscal crisis is possible.

The new administration is challenged to put forward pro-people initiatives to address the fiscal crisis, but front-running presidential candidate Sen. Benigno ‘Noynoy’ Aquino has yet to take a strong progressive position on the country’s fiscal problems, said research group IBON.

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.

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.

The rise in the deficit to P298.5 billion or 3.9% of gross domestic product (GDP) in 2009 from P68.1 billion (0.9% 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.

The strategy that an Aquino administration chooses to deal with the accelerating fiscal crisis will signal how ‘reformist’ it is going to be. 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 RVAT in November 2005. Unfortunately there are signs that an Aquino government will continue the Arroyo administration’s approach of raising taxes, selling public assets, and squeezing spending including on social services– while consistently making debt repayments.

According to IBON, 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.

On the expenditure side are 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. (end)