Philippines has tools to avoid fiscal crisis, says DOF
MANILA, Philippines — The Philippines is equipped with the necessary measures to prevent a repeat of the fiscal crisis that plagued the economy during the Asian financial crisis, according to Finance Ministry Chief Economist Gil Beltran.
He said the economic reforms pursued by the government since 2012 would help the country avoid another fiscal crisis.
According to Beltran, the shortcomings of the fiscal measures taken in 1997 to mitigate the impact of the Asian financial crisis were corrected by the previous administration.
In 1997, the government omitted the indexation of taxes to inflation and did not revamp the menu of tax incentives for investors.
The Sin Tax Act approved by the administration of the late President Benigno Aquino III in 2012, however, calculated tax rate inflation and improved sin tax collection.
The Duterte administration followed by adjusting the condition for granting the incentives. The Business Recovery and Tax Incentives Act of 2021, or Republic Act 11534, reduced corporation tax to 25%, but removed some of the tax benefits available to investors.
Beltran added that RA 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Act generated additional revenue through tax hikes that the government depended on for its infrastructure development.
Data showed that TRAIN collections brought in a total of 476.1 billion pesos in revenue between 2018 and 2021, allowing the government to push infrastructure spending to more than 5% of gross domestic product (GDP).
Last year, infrastructure spending reached P1.12 trillion, or 5.8% of GDP, and is expected to exceed 5% of GDP until 2024.
Going forward, Beltran said the next administration should revamp the fiscal stance without sacrificing infrastructure spending.
On the one hand, the government could streamline the pension system for uniformed personnel, as the operating scheme costs the economy at least 114 billion pesos a year.
Government revenue, measured by GDP, jumped to 15.9% in the first quarter, approaching the pre-pandemic level of 16.1% at the end of 2019.
By comparison, revenue efforts reached 17.5% of GDP when the Asian financial crisis hit in 1997 and 13.3% when the debt-to-GDP ratio peaked at 71.6% in 2004.
The debt level, however, hit a 17-year high of 63.5% of GDP in March.
In response, the DOF wants the next administration to consolidate its finances by eliminating value-added tax (VAT) exemptions, deferring tax cuts and imposing new taxes.