‘Fiscal prudence, not new taxes, best option’

THE next administration would not have to raise taxes if it will use its resources efficiently in order to usher in a sustainable and inclusive economic recovery post-pandemic, according to local economists.

Former Ateneo Center for Economic Research and Development (ACERD) Director Alvin P. Ang said managing expenditures would be crucial for the next administration, given the country’s fiscal challenges.

Ang said the main issue for the next administration is the use of resources, especially in light of the country’s challenges with higher oil prices, Covid-19, and the weak global economy.

“[The]  new administration should have a battle plan for all of these [challenges]. They cannot adopt a populist approach [especially] if there’s no sure revenue flow,” Ang told BusinessMirror on Sunday.

Ang said currently, the main threats come from the global economy’s problems which impact the Philippines. This will also place pressure on the country’s ability to borrow funding.

According to Ang, one way to raise revenues is through investments. But Foreign Direct Investment (FDI) will only reach Philippine shores if the next administration has a solid plan for economic recovery.

This plan, Ang said, should include efforts to standardize the government’s Covid-19 response. Ateneo Eagle Watch Senior Fellow Leonardo A. Lanzona Jr. agreed, and said addressing the health situation is something that the next administration should prioritize.

“Regardless of who becomes president, the government needs to first address the health situation so that we can withstand further virus attacks without engaging in lockdowns anymore,” Lanzona said.

Besides improving the country’s health system, Lanzona said the government must be “more entrepreneurial in developing the other products and regions” by supporting agriculture.

In the 1980s, he recalled, the Malaysian government’s centerpiece program was Palm Oil Development. A similar program can be implemented in the country not only to boost agriculture growth but also to become the base for manufacturing growth.

However, Lanzona admitted that such a program will require significant technological innovations, not only from the government but also from the private sector. Efforts to improve the government’s financial position are still needed.

“On the fiscal side, we need to impose a wealth tax. Increasing the absorptive capacity of the government will be insufficient in light of the worldwide economic slowdown,” Lanzona said.

Rest of tax reforms

Boosting public revenues, Action for Economic Reforms (AER) Coordinator Filomeno Sta. Ana III said, can be done through tax reforms.

He noted that tax reform packages 3 and 4 proposed by the Department of Finance (DOF) may no longer be legislated under the current administration.

The DOF said package 3 of the Comprehensive Tax Reform Program (CTRP) aims to promote the development of a just, equitable, and efficient real property valuation system.

Package 4 or the proposed Passive Income and Financial Intermediary Taxation Act (Pifita) aims to make passive income and financial intermediary taxes simpler, fairer, more efficient, and more competitive regionally.

Sta. Ana added that gaps and even “compromises” made in undertaking previous reforms also need correction in order to boost growth. He added that “there are products with negative externalities that need to be taxed higher.”

“Government has to grow the economy amid the uncertainty and volatility caused by the Russian invasion of Ukraine and the pandemic,” Sta. Ana said.

“That means continued heavy government spending for public goods which, however, must be tempered by cutting waste and inefficiency. A Marcos presidency however will spook good investments,” he added.

Pandemic shaves GDP

Last week, the National Economic and Development Authority (Neda) said the pandemic has prevented the Philippine economy from breaching the P20-trillion mark in terms of its nominal GDP.

In an online forum, Neda Undersecretary for Policy and Planning Rosemarie G. Edillon said if it weren’t for the pandemic, the country’s GDP would have already reached P22 trillion.

Edillon said this meant that the pandemic’s cost to the economy is around P3 trillion to P4 trillion. As of 2021, the country’s GDP in nominal terms reached P19.4 trillion, 99.4 percent of the P19.5-trillion GDP in 2019.

Because of the losses they incurred, businesses may have laid off workers or reduced the salaries of their employees or both in the past two years, Edillon said. This, the Neda official stressed, is the reason the government must accelerate the economy’s recovery.


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