THE Development Budget Coordination Committee (DBCC) does not need to scale back its growth targets for this year, but must consider how to raise revenue, and perhaps shed its reluctance to introduce new taxes, analysts said.
“We don’t think there is any need to revise the DBCC growth target,” Aris D. Dacanay, economist for ASEAN (Association of Southeast Asian Nations) at HSBC Global Research, said in an e-mail.
“Our 2024 growth forecast is just a bit lower at 5.8%, and with reforms such as the rice tariff rate cut potentially boosting consumption in the Philippines, the possibility for the economy to reach the lower end of the target isn’t zero.”
Economic managers have yet to announce whether they will revise fiscal targets for this year. In April, the DBCC cut its gross domestic product (GDP) growth target to 6-7% from 6.5-7.5%, backed by concerns over geopolitical instability and trade disruptions.
Mr. Dacanay also noted that the government’s public-to-GDP ratio is expected to fall as the government continues to pay down debt incurred during the coronavirus pandemic.
“What is important to monitor is the direction public debt-to-GDP is going. And despite high fiscal deficits until 2028, public debt-to-GDP is still expected to fall since a big portion of the deficit will be used to pay for the debt incurred during the pandemic (which reduces overall debt).”
The National Government’s debt as a share of GDP fell to 60.2% in the first quarter from 61.1% a year earlier, the Treasury bureau reported. However, this is still above the 60% threshold that multilateral institutions deem manageable for developing economies.
The government’s debt-to-GDP ratio target for this year is 60.3%, with an ultimate goal of 55.9% by 2028, when the current government steps down.
While Mr. Dacanay said there is no urgency to impose new taxes to broaden fiscal space, “any additional revenue from well-designed tax measures will always be good for the economy.”
“For instance, implementing the digital tax will help level the playing field for enterprises who are not doing business in the digital space.”
The Department of Finance (DoF) has said it is not planning to impose new taxes, and will instead push for nontax revenue in its fiscal consolidation plan.
The DoF reported that nontax revenue hit P206.4 billion as of April.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that the government must focus on “intensified” tax collection and encourage greater tax compliance by the public to generate sufficient revenue to fund development priorities.
“However… there may be a need to increase tax rates and introduce new taxes, though signaled as a final resort/option, especially if inflation eases/stabilizes further in the coming months,” he said via Messenger chat.
Filomeno S. Sta. Ana III, coordinator at Action for Economic Reforms, said the government should introduce new tax measures while maintaining adequate spending.
“A sound fiscal consolidation plan will necessarily include generation of higher revenue,” he said in a Viber message.
“Cutting spending is one approach but we can only cut the wasteful spending; otherwise, an austerity program will hurt the whole economy and society.”
Proper tax administration is also deemed insufficient to generate the necessary revenue.
“Hence, government has to identify new taxes which are efficient and politically feasible… the point is, government should not reject tax policy as a main strategy for fiscal consolidation,” Mr. Sta. Ana said.
Tax measures that policymakers should consider include increasing rates for sin products like alcoholic drinks and vapes, as well as inflation-adjusted rates for sweetened beverages.
Mr. Sta. Ana also cited the need to reform the pension system for military and uniform personnel and rationalize value-added tax by limiting exemptions to essential goods.
The government must also ramp up spending on state programs in infrastructure, healthcare, disaster risk reduction, and the green energy transition to reach its fiscal targets, he added. — Beatriz Marie D. Cruz
