(Last of three parts)
Revenue unfriendly
On the expenditure side, the proposed budget for 2024 doesn’t spend on pressing economic needs while increasing spending to boost corporate profits and narrow political self-interest. This is made worse by how, on the revenue side, an increasingly disproportionate burden is placed on the poorest Filipinos while favoring the richest.
The economic team’s emphasis on its medium-term fiscal framework (MTFF) and its deficit and debt reduction goals is misplaced as much as its design is misguided.
It is misplaced because the budget should be responsive to social and economic problems. Growing social distress from worsening joblessness and informality because of agricultural and industrial decline should be addressed. What the administration packages as a virtue – reducing deficits and debt – is actually a vice. The resulting fiscal conservatism is counterproductive for growth and development.
The MTFF’s design also has a misguided approach to revenue generation. It is regressive and over-relies on indirect consumption taxes on poor and middle-class Filipinos whose incomes and spending are already at such low levels.[1] On the other hand, it cuts direct taxes especially on high-income families and large corporations, while avoiding wealth taxes even just on hugely concentrated billionaire wealth.[2]
Regressive revenues
The proposed 2024 budget is thus relentless in worsening the regressivity of the tax system. The proposed PIFITA law aims to eventually reduce the taxes that rich Filipinos and corporations pay on their financial investments.[3] It momentarily increases tax payments by Php2.7 billion in 2024 but this falls to Php810 million in 2025 before turning into tax cuts starting with Php1.6 billion in 2026.
This has to be seen in the context of the previous Duterte government’s TRAIN, CREATE and FIST tax laws which already greatly reduced the direct taxes that rich families and large corporations pay.[4] These so-called tax reforms were projected to reduce government revenues by Php227.6 billion in 2022 and Php302.9 billion in 2023.
On the other hand, there are going to be new and higher taxes particularly burdening the poor and middle-class. The proposed taxes on digital services, single-use plastics, sweetened beverages, junk food, and Motor Vehicle and Road Users Tax (MVRUT) are consumption taxes increasing the burden of taxpayers with Php99.6 billion more in 2024, Php132.1 billion in 2025, and Php164.4 billion in 2026.
These new taxes come on top of other burdensome taxes on the poor and middle-class under the TRAIN and so-called sin tax laws. Higher taxes on petroleum, tobacco, e-cigarettes, alcohol and other goods and services from removing VAT exemptions increased taxpayer burdens by Php308.2 billion in 2022 and Php347.6 billion in 2023.
The government is losing more and more revenues from the series of tax cuts for the rich and large corporations. It tries to compensate for these with greater consumption taxes which disproportionately burden the poor and middle-class. There is however only a limited amount to be squeezed from low-income groups even when accompanied by improved tax administration, so revenue generation remains poor – leading to constant borrowing and excessive debt.
Debilitating debt
The national government deficits and debt can be immediately contained with a more progressive tax system that makes those with the ability to pay more pay more. Personal income taxes should be increased on the 150,000 highest-income families, corporate income taxes should be increased on the 5,000 large corporations in the country, and a wealth tax put on the 3,000 Filipino billionaires. The billionaire wealth tax alone will raise over Php500 billion annually (at least Php501.5 billion in 2023).
As it is, debt keeps growing and is projected to increase from Php14.1 trillion as of June 2023 to Php15.8 trillion as of end-2024. This isn’t even debt necessarily spent well. Given persistent mispriorities in the budget, much of government debt incurred doesn’t really go to making the economy more dynamic and revenue-generating.
A large part of debt even goes just to repaying debt. There is Php2.5 trillion in gross borrowings next year but also a massive Php1.9 trillion in debt service, with Php670.5 billion in interest payments and Php1.24 trillion for principal amortization.
The burden of so-called fiscal consolidation is placed on the poor and middle class who are being made to pay even more taxes on the few goods and services that they can afford. On the other hand, the budget and tax system particularly favors the handful of Filipino billionaires. They are the biggest beneficiaries of economic policies, including the national budget, and are allowed to accumulate even more wealth and political power.
Whose budget
The budget is only one of the wide range of policy measures the government has to spur growth, develop the economy, and improve the conditions of the people. The attention the public gives is well-deserved because the budget can do so much so quickly to achieve these.
Unfortunately, by its actions, the Marcos Jr administration is clearly showing that alleviating the distress of millions of poor families facing cost-of-living pressures is less important than its infrastructure projects and debt servicing. The proposed 2024 budget leaves millions of Filipinos behind while favoring special interest groups – big corporations and creditors, political pork barrel, and the military and police.
The government is also dogmatically unwilling to do all it can to develop agriculture and build Filipino industries. In this regard, it merely reflects the obsolescent free market globalization framework elaborated in the administration’s Philippine Development Plan (PDP) 2023-2028. Implementation of this framework for the last four decades is the biggest reason for the economy’s persistent underdevelopment.
The budget can be fixed in small ways during the current budget season. This is if our legislators are open-minded enough to really look at the proposed budget from the perspective of the people’s needs – and bold enough to challenge the president, who prepared and submitted this to Congress, and the self-serving political interests surrounding him. Otherwise, without new economic thinking, every budget will remain a budget badly made for a long time to come.
(First part here)
(Second part here)
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[1] Consumption taxes (ex. VAT, excise taxes) on goods and services are indirect taxes, or taxes that are charged the same to any poor, middle-class, rich, or billionaire consumer. Indirect taxes are thus regressive in being blind to the taxpayers ability to pay.
[2] Taxes on income and wealth are direct taxes that depend on whether the taxpayer is poor, middle-class, rich, or a billionaire. Direct taxes are progressive because they are designed precisely according to the taxpayer’s ability to pay.
[3] Passive Income and Financial Intermediary Taxation Act (PIFITA)
[4] Tax Reform for Acceleration and Inclusion (TRAIN), Corporate Recovery and Tax Incentives for Enterprises (CREATE), and Financial Institutions Strategic Transfer (FIST)