MORE TAXES: GOVT’S UNPOPULAR OPTION TO AVOID FISCAL FLARE UP

A fiscal flare-up seems possible in 2008 as the Arroyo administration runs out of government assets to privatize. There are far more reasonable measures to address fiscal problems than imposing new burdensome taxes, but government is unlikely to implement these.

Presenting data from the IBON Birdtalk study, IBON research head Sonny Africa said that apart from cracking down on corruption, the administration could in principle also reduce the need for new taxes by cutting back on debt service and on military spending. It could also reverse trade liberalization by imposing tariffs on imported components, particularly those used in export-processing zones, which are merely re-exported after being assembled by low-paid Filipino labor.

He pointed out that in the 2008 national budget, total debt service (interest and principal payments) will amount to P624 billion or more than half of the proposed P1.227 trillion budget. Meanwhile, defense as a single item of the budget accounts for 5% of the national budget but increases to 11% if military spending charged to other departments and sectors is considered. Tariff reductions and eliminations similarly cost government billions in foregone revenues.

But Africa said the administration will not do any of these moves. He pointed out that the Arroyo administration’s moves to resolve the fiscal crisis have been in the service of being able to continue to service the country’s immense public debt. Pres. Arroyo is also not likely to cut back on the defense budget because of her apparent reliance on the military’s support for her continued stay in power.

The government will also not reverse its tariff reduction program because of its bias for foreign investors, Africa said. He added that the government is even pushing for the ratification of the Japan-Philippines Economic Partnership Agreement (JPEPA), which IBON estimates will cost government at least P10 billion in foregone revenues.

The cost of such policies will inevitably hit the poor the most, as allocations for social services will continue to be cut. The country’s expenditures on education and health are already way below international standards, with education accounting for only 2% of gross domestic product (GDP) from the ideal 5% to 6% and total health expenditure only 3.2% of GDP.

However, a push for new taxes could impact Arroyo’s much vaunted economic growth figures, and spark wider public unrest, Africa warned. IBON has forecasted a possible budget deficit of P82 billion in 2008.

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