Pro-poor Response to the Fiscal Crisis
By Antonio Tujan, Jr.
and Arnold Padilla,
IBON
August 2004
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The
challenge for the Arroyo administration is how to unite the various
sectors in supporting the campaign of the President to tame the fiscal
crisis. The admission of the President that the country is in the midst of
a fiscal crisis following the report of the University of the Philippines
(UP) School of Economics was meant to achieve this. But is unity possible
under an anti-poor response to the fiscal crisis?
The challenge for the
Arroyo administration is how to unite the various sectors in supporting
the campaign of the President to tame the fiscal crisis. The admission of
the President that the country is in the midst of a fiscal crisis
following the report of the University of the Philippines (UP) School
of Economics was meant to achieve
this. But is unity possible under an anti-poor response to the fiscal
crisis?
Popular support
The declaration of the President was meant to create public alarm and gain
popular support for the new taxes that government wants to impose. It was
meant to pressure Congress to give the President emergency powers to
better steer the country during a ‘state of fiscal crisis.’
However, the admission did not achieve its desired result but only caused
further speculation in the economy. The foreign exchange rate slid back to
$56: P1 while the stock market faltered and the banks’ risk premium
increased. Legislators opposed to the new taxes including those who
supported the President last May elections have remained firm in their
position. The proposal for an emergency power was shot down at once.
Burden sharing
Malacañang and the UP
School of
Economics harp on unity and ‘burden
sharing’ among government, the business sector, and the ordinary folk to
find a meaningful solution to the fiscal crisis. But for the poor, it is
not acceptable not only because they cannot bear any longer the burden of
rising cost of living, unemployment, and low income. The measures being
proposed by the President and the UP School
of Economics actually pass most of
the burden to the people.
A correct understanding of the root of the fiscal crisis is required if
government seriously wants long-lasting solutions. This also enables
government to design short-term measures that are more acceptable and more
pro-people.
Debt management
The most important first step to address the fiscal crisis is a review of
government’s debt management. Government looks at debt as an instant
remedy rather than the root of its fiscal woes. In fact, even as the
President recognized the fiscal crisis, government continues to borrow
heavily from foreign creditors.
Between March and July, foreign debt has jumped from more than $56 billion
to almost $61 billion. In the first half of the year, foreign loans
comprised 37% of gross borrowings. The original target was only 16
percent. This worsens the fiscal position of government since its debts
get more exposed to currency fluctuation.
Meanwhile, automatic debt payment bleeds the public coffer dry. The
proposed debt service for 2005 is P646 billion compared with P10 billion
for health and P112 billion for education. Malacañang should endorse
current efforts in Congress to review how government manages its debts. At
a time of fiscal crisis, it is more necessary to impose a cap on
borrowings and payments so government can have more flexibility in
managing the people’s money and protecting the people’s welfare.
If the Arroyo administration can only muster enough political will, it can
negotiate with the country’s creditors to reduce some of our debts.
Government must re-negotiate onerous debts like the P500-billion debt of
the National Power Corporation (NAPOCOR) to lessen its impact.
Customs collections
With a debt cap easing the fiscal hemorrhage, government can look for ways
to raise additional revenues and reduce the budget deficit. But government
does not need to impose new taxes that are regressive and anti-poor like
the P2 per liter increase in specific tax on oil products and the two-step
hike in value added tax (VAT).
Instead government must raise its customs collections by increasing the
tariff levels of agricultural and industrial imports that have been
liberalized under the World Trade Organization (WTO). Since 1996 (the
first year of the WTO), the Bureau of Customs’ (BOC) tax to GDP (gross
domestic product) ratio has progressively decreased from 4.8% to 2.4% in
2002.
Investment perks
The Arroyo administration can also reduce the incentives it gives to
attract foreign investors. The Department of Finance (DOF) recently
reported that the country waived P229 billion in potential revenues last
year due to the numerous tax breaks and duty exemptions granted to
businesses. Even if government suspends 50% of these perks, the Bureau of
Internal Revenue (BIR) and the BOC can still collect around P165 billion.
The Department of Trade and Industry (DTI) is now reviewing the incentive
packages of the Board of Investment (BOI) and the Philippine Export Zone
Authority (PEZA). The DTI should focus on the perks of big foreign
corporations and maintain the incentives for small local businesses.
Plug leakages
Another doable measure to improve the country’s revenues is to plug the
leakages in the tax collection system. Estimates show that uncollected
revenues from interest income tax, documentary stamp tax, gross receipt
tax, excise tax on tobacco products, value added tax, individual and
corporate income tax reach more than P179 billion.
If the BIR can recover even 50% of this uncollected amount, it still
translates to almost P90 billion-- P10 billion more than what government
projects it can collect from the new tax measures. Another estimate,
meanwhile, says that a measly 1%-improvement in our tax collection effort
(tax to GDP ratio) means P32 billion more revenues for government.
Unity means pro-poor
The fiscal crisis hurts the poor Filipinos more than it hurts the rich and
the big corporations. A fiscal crisis means that the resources of
government are so drained that it can no longer fund social services and
development projects for the poor.
Thus, asking the poor to pay more taxes so that we can get out of the
crisis is doubly unjust. Only under a pro-poor management of the fiscal
crisis will make Filipinos rally behind the Arroyo administration during
this difficult time. IBON Features
Bulatlat
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