Pass new taxes in 2012 or else…

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Former government officials urge the Aquino government to push for new revenue sources before 2013, an election year

MANILA, Philippines – Former government officials urged Aquino to push for new or improved tax measures this 2012 or face the possibility of falling short on promised services, including K+12 scheme for education, universal healthcare and massive infrastructure.

The Aquino government may need to tighten its belt starting 2013 as no new tax measures are still in place despite plans to boost spending in the coming years, they added.

“I think the government is (giving) a false sense that we have fiscal space. It’s not true that we have this fiscal space because we have not been spending our money,” former budget secretary Benjamin Diokno said in the sidelines of a forum on Monday, January 16, 2012.

“If you sum up all the things they want to do like K+12, universal healthcare, public infrastructure of about 5% of GDP (Gross Domestic Product), they’re gonna run out of money maybe as early as 2013,” Diokno added.

No new taxes was one of the campaign promises of President Aquino when he ran and won the presidential race in 2010, pushing instead to plug tax loopholes by running after evaders and smugglers.

Sin taxes

Reforms in the current sin tax system is being eyed as a key source of additional revenues.

Among the possible tax measures, higher tax slapped on “sin” products such as cigarettes and alcohol, is more acceptable to most Filipinos, according to former Finance Secretary Margarito Teves.

At least P60 billion a year could be raised when the current 4-tier sin tax system, which favors certain brands, is simplified into a unitary rate, Teves said.

He added that Aquino can package the sin tax reforms as part of funding for health issues, as well as bank on his political capital to push the unified sin tax system.

He, too, urged the Aquino government to push for the reforms in the first half of 2012, citing his own experience of experiencing difficulties at getting legislators’ focus in the months leading to an election period.

Watch more of our interview with Teves below:

Diokno and Teves attended the first Philippine Center for Economic Development-Institute of Public Economics and Regulations (PIPER) forum with the German government through GIZ (Deutsche Gesellschaft fuer Internationale Zusammenarbeit) on January 16.

Before elections

Even state-owned think tank Philippine Institute of Development Studies (PIDS) had previously warned that the government has a window of opportunity of only two years — 2011 and 2012 — to pursue new tax legislations.

PIDS Senior Research Fellow Dr. Rosario G. Manasan had said that legislating new tax measures on an election year, 2013, will only result in “diluted” measures.

Manasan had said that increasing revenues is critical because the government needs to pare down poverty incidence in the country by as much as 10 percentage points in 5 years to meet the goal on halving poverty by 2015.

The 2009 poverty incidence was at 26.5%. The target is to reduce poverty incidence to only 16.55% by 2015.

In the inaugural issue of the PIDS Economic Policy Monitor 2010, the PIDS had stressed that the government need to raise revenues to 17.6% to 18% of GDP to help finance programs that will promote inclusive growth and meet the Millennium Development Goals (MDGs) by 2015.  

Government purse

In 2011, the government purse was not as tight as in the previous years since the Aquino government underspent. Key infrastructure projects were delayed due to basic governance checks that the Aquino administration were pursuing in the hope of benefits that are longer lasting.

The expected deficit for 2011 is only P140 billion, a far cry from previous years’ over P300 billion. A budget deficit is a measure of fiscal health, or the ability of the government to balance revenue collections, mostly through taxation, and spending policies.  

The Philippines, however, has been able to easily plug its deficits by tapping global debt markets and generally enjoy competitive rates. On the second week of January, the Treasury Department successfully raised $1.5 billion in global bonds with a 25-year term at only 5% interest, even lower than some richer countries.  –

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