Cai U. Ordinario
Business Mirror
May 19, 2010

Independent think tank Ibon Foundation gave unsolicited advice to Sen. Benigno Aquino III, frontrunner in the presidential elections, urging him to eschew proposals to hike tax rates in order to improve the country’s fiscal picture.

“Senator Aquino’s recent statement that he will improve tax administration and collection efficiency is welcome, but even in the best circumstances this will take time to materialize. His declared openness to raise taxes, however, is cause for concern given the past administrations’ bias on relying on relatively easy to collect but regressive consumption taxes over basic fiscal reforms. He has also conspicuously avoided articulating a stand on burdensome debt payments,” Ibon said in a statement.

Ibon said the President-elect must put forward pro-people initiatives that also address the fiscal crisis, resist the pressure to impose new taxes, and develop a strong position on the country’s fiscal problems.

The rise of the deficit to P298.5 billion or 3.9 percent of gross domestic product (GDP) [at this point in the year] this year from P68.1 billion (0.9 percent of GDP) in 2009 was the steepest the country has ever seen and indicates the severity of the problem.

“If this current revenue and spending trends continue, Ibon estimates a deficit in 2010 of P309 billion to as much as P374 billion. The low estimate assumes revenue effort recovering to the average over the long 2000-2009 period and the high estimate of no improvement from 2009.”

The International Monetary Fund (IMF), finance officials, creditors, and private-sector economists including the academe have been vocal on having new and higher taxes to deal with the national government deficit. Among others, these include raising the value-added tax (VAT to 15 percent from 12 percent) and sin taxes on cigarettes and alcohol.

However, Ibon said the Aquino administration can be a true “reformist” when it comes to choosing to deal with the accelerating fiscal crisis. On the revenue side, this means a progressive tax regime that demands more from those with the capacity to pay, like corporations and high-income individuals.

Lifting the RVAT is a crucial first step, followed by increasing taxes on large corporations and high- income individuals, reducing fiscal and other incentives given to foreign investors, and resuming collection of tariffs, particularly on imports used chiefly by foreign export-oriented interests.

On the expenditure side, the think tank said the next administration can ease up on debt payments by subjecting these to more sensible prioritization like stopping payments on onerous and odious debts, negotiating better credit terms, and giving preference to creditors more amenable to the country’s development efforts.

In addition, Ibon said it can cut back on high military spending and cracking down on the corruption causing gross leakages of public funds to private pockets.

“Unfortunately, there are signs that an Aquino government will continue the Arroyo administration’s approach of raising taxes, selling public assets, and squeezing spending including on social services– while consistently making debt repayments.”