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Hard to pass all fiscal reforms in transition plan, says Salceda

Elijah Felice Rosales – The Philippine Star
June 6, 2022 | 12:00am


The House of Representatives has signaled it may fail to legislate all of the fiscal reforms proposed by the Department of Finance (DOF) to address the debt problem.

House ways and means committee chairman Joey Salceda said the next administration can find ways to generate the revenues needed to pay the pandemic debts without resorting to tax hikes.

Salceda, expected to head the same committee in the 19th Congress, said it might be difficult to pass all of the tax measures in the consolidation plan drafted by the DOF.

The DOF said the next administration has to raise P249 billion in additional revenues every year to make space for debt payments. In turn, the agency proposed a string of reforms that can add P349.3 billion in annual income, but requires the removal of VAT exemptions, deferral of tax cuts, and introduction of new taxes.

“The DOF fiscal consolidation plan is not an exhaustive list of measures that we can enact. With that said, we really need to improve revenues if we are going to keep our spending levels, while shock-proofing the budget,” Salceda told The STAR.

As an alternative, he said the next administration can adopt his three-phased approach in reverting the fiscal position to pre-pandemic health.

First, Salceda said the government can protect its existing resources by imposing a moratorium on added personnel spending and new tax exemptions.

Second, the legislator suggested that fiscal consolidation focuses on improving the enforcement of present tax laws through internal reforms and innovative changes.

When completed, Salceda said only then can the government pursue fiscal expansion, wherein new taxes can be explored to boost the state’s war chest. For the meantime, economic recovery should be prioritized so that the national output outgrows the debt pile.

As pitched by the DOF, the next administration can gain P142.5 billion every year by eliminating exemptions for VAT purchases. Further, it can defer the scheduled reduction in personal income tax for three years to collect P97.7 billion annually from 2023 to 2025.

The DOF also said that the government can jack up excise taxes on harmful goods, particularly cigarettes, to register P91.4 billion in sin revenues per year.

The DOF warned that failure to carry out fiscal reforms would force the government to borrow new loans to settle old debts, a scenario that entails an economic crisis in the long term.

De La Salle University economics professor Maria Ella Oplas said the consolidation plan filed by the DOF can be compared to a double-edged sword: it may yield incremental revenues on one hand, and it may discourage consumption and investments on the other.

“If the government’s objective is to stimulate consumption and attract investments, raising taxes as proposed by the DOF could lead to the opposite. As we reopen the economy, we should just keep tax rates the same for consumers to spend and firms to expand,” Oplas told The STAR.