Finance Secretary Carlos G. Dominguez III (Photo from DOF)
MANILA – The Department of Finance (DOF) has prepared a proposed fiscal consolidation program for the incoming administration, citing the need to increase revenues to pay for pandemic-related spending starting 2023 and sustain economic growth.
In a briefing on Wednesday, Finance Secretary Carlos G. Dominguez III said the proposed fiscal consolidation and resource mobilization plan is aimed at helping the new administration “hit the ground running and take advantage of the momentum created by the Duterte administration over the last six years.”
Under the proposal, the government needs to raise revenues, improve tax administration, and cut unnecessary spending with fiscal reforms.
It entails three packages, the first one of which is for implementation in 2023 and the next two are for implementation in the next two years.
Among the proposals under the first package are a three-year deferment of the personal income tax reduction under the Tax Reform for Acceleration and Inclusion (TRAIN) Law starting 2023, expansion of the Value Added Tax (VAT) base and possible VAT rate reduction, repeal of the immediate expending of input VAT on capital goods, imposition of VAT on digital service providers, reform of the Motor Vehicle Users’ Charge (MVUC), repeal of excise tax exemption of pickups and imposition of excise tax on motorcycles, and rationalization of the mining fiscal regime.
The first package is eyed to bring in an annual average revenue impact amounting to PHP247.8 billion.
The second package is seen to have an average revenue impact per year of PHP126.8 billion while the projected revenue impact of the third package is yet to be determined.
Dominguez said these proposals form part of the department’s “obligation to the Filipino people and to the new administration to help address the long-term financial issues brought about by the Covid-19 pandemic as well as the ongoing crisis in Ukraine.”
He said the proposed measures are “fair, efficient, and corrective.”
“The plan is doable and is designed to secure the gains that we have made under the Duterte administration and to ensure that the government can continue to make economic investments and pursue programs for recovery, maintain its high credit ratings, grow out of its debt faster, and cushion the Philippine economy from future external shocks,” he said.
He explained that “not pursuing a fiscal consolidation and resource mobilization program may likely lead to serious and spiraling consequences to our financial and economic health.”
He said finance authorities “are optimistic that the incoming administration and our next set of legislators will recognize the importance and urgency of these measures and implement them at the soonest time possible.”
“The next administration is coming in with a strong mandate. We are confident that the soon-to-be President will put it to good use by pursuing critical reforms such as this much-needed program,” he said.
During the same briefing, DOF officer-in-charge Undersecretary Valery Brion said there is a need to have the financing to pay pandemic-related borrowings for the economy to keep its credit ratings.
Citing the Bureau of the Treasury (BTr), she said the government needs to raise at least PHP249 billion annually so as not to resort to additional borrowing to pay its PHP3.2 trillion pandemic-related debt.
She said another option is to cut productive spending by an equivalent amount but pointed out that this will, in turn, risk the economy’s recovery since there is a need to sustain spending on infrastructure, education, healthcare, and other critical socioeconomic programs to ensure inclusive growth.
She said cutting government expenditures by PHP249 billion is equivalent to not constructing 143,876 public school classrooms, 8,174 kilometers of paved roads, and free irrigation for 609,645 hectares of land, among others.
“Our best option is to expand fiscal space through new taxes and improve tax administration and enforcement,” she added. (PNA)
