Spending

Next administration urged to improve spending and tax the rich

Reuters

By Jenina P. Ibanez, Senior Reporter

ANALYSTS push to target spending and a tax on the rich like the the government is preparing a tax consolidationdation plan to deal with the growing debt of the Philippines.

“In general, a fiscal consolidation plan should involve raising taxes and reducing public spending. However, both can lead to slower economic recovery,” said Asia University and PaciIfc Senior Economist Cid L. Terosa said.

The Department of Finance (DoF) is preparing a Iffiscal consolidation plan to manage debt as it transitions to the next administration taking over on June 30.

The government recorded 11.73 trillion pesos in outstanding debt at the end of 2021, growing nearly 20% year-on-year. This pushed the debt-to-GDP ratio to 60.5%, above the 60% threshold considered manageable by multilateral lenders for developing economies.

Finance Secretary Carlos G. Dominguez III has hinted that he will propose new, higher taxes to pay debts incurred during the coronavirus disease 2019 (COVID-19) pandemic.

According to Mr. Terosa, the government should continue to roll out tax reforms instead of imposing higher taxes.

“Furthermore, the imposition of less distorting taxes, such as the wealth tax, should be carefully considered. In the short term, the government can issue bonds to raise funds,” he said in an email. “Furthermore, the next government can keep interest rates low to stimulate the economy and generate more tax revenue.”

Rene E. Ofreneo, president of the Freedom from Debt Coalition, said in a phone interview that the next president should use hisfluence to call on the wealthiest Filipinos to support a wealth tax.

Bill 10253 or the Super-Wealthy Tax Bill of 2021 seeks to impose a 1-3% tax on wealth from 1 billion pesos and above.

According to the bill introduced by a minority bloc in the House of Representatives, the tax would be used to finance medical assistance, education, employment, social protection and housing for the poor.

Dominguez has spoken out against such plans, which he says would lead to aggressive tax avoidance schemes and boost the country’s investment.

“Dominguez’s setting is traditional,” Mr. Ofreneo said in a mix of English and Filipino.

“Indirect taxation continues to increase through the excise tax on gas,ffects jeepney drivers. But for the big players, the government’s strategy is to reduce import duties and give them incentives. In other words, secure their proIfts. It’s supply-side economics. But for me, what is most important? Survival of the economy as a whole? Or secure the proIfts of a few, which can be eroded by a crumbling economy? »

TARGETED SPENDING
The other side of Iffiscal consolidation is about managing government spending.

To spend well, the government should avoid wasteful spending and focus instead on funding pandemic response measures, said the executive director of the Institute for Leadership, Empowerment and Democracy, Zy-za Nadine Susana.

By mid-January, the DoF had raised $25.8 billion in Ifnancing of the government’s response to the pandemic through multilateral lenders, development partners and global bonds denominated in foreign currencies.

But Ms. Suzara said the country IfFiscal woes are not primarily due to these pandemic-related borrowings.

“Although there may be an increase in health allocations in the 2022 national budget, the truth is that priority has been unfairly given to infrastructure projects, which include some 292 billion pesos of clientelism-oriented projects” , she said in a Viber message.

“It’s the projects that are eating away at our funding sources, not the 120 billion pesos of pandemic response spending that is parked in unprogrammed appropriations.”

Unprogrammed appropriations can only be financed if the government realizes surplus or new revenues.

The government probably wants to raise taxes because of the “Ifscal enigma,” Ms. Suzara said. The next administration must finance 250 billion pesos in projects for education, health and social services within the framework of unprogrammed appropriations.

With poor public spending, raising taxes would not necessarily solve the country’s problems. Ifscal issues, Ms. Suzara said.

“The debt will inevitably settle at a higher level because of the pandemic. But to keep it from going higher, the IfThe first order of business should be to properly allocate fiscal space and reduce excess fat in the national budget,” she added.

Similarly, Mr. Ofreneo said the government should adjust infrastructure spending by reducing costly projects that beneIft only a few in favor of community programs that help protect citizens from the pandemic and climate change.

However, UA&P’s Mr. Terosa said it is difficultIfcult to cut spending because the economic recovery will demand it.

“I think a Iffiscal consolidation plan should prioritize targeted spending,” he said.

“This will involve identifying spending programs and projects that will produce a relatively higher multiplier of output, income and employment effeffects on the economy. Moreover, spending on the most vulnerable sectors must be preserved.

Economic managers are targeting gross domestic product (GDP) growth of 7-9% this year, after GDP grew 5.6% in 2021.