Arroyo Likely To Impose New Taxes To Avert Fiscal Crisis

Sta. Ana coordinates Action for Economic Reforms. This article was published in the Opinion Section, Yellow Pad Column of BusinessWorld, July 2, 2007 edition, page S1/4.

How do you solve a problem like the BIR?

Remember the Beatles’s song titled Taxman? Even though we, like the Beatles, hate taxes and the tax collector, it is to our interest to make the Bureau of Internal Revenue (BIR) efficient.

For the ordinary people, the BIR’s enhanced revenue collection can translate into more and better provision of public goods. Over the years, under Mrs. Arroyo’s administration, per capita spending or real spending for basic services—education, health, infrastructure, and others—has declined.

The budget for basic education has been below 1.5 percent of GDP since 2001. Health spending has been below 0.5 percent of GDP. Infrastructure spending since 2003 has been below one percent of GDP (0.73 percent in 2006, according to the Department of Budget and Management). As a ratio of GDP, infrastructure spending in poor Laos is bigger. All these expenditure figures are way below the international benchmarks. All these expenditure figures are way below the international benchmarks.

The fiscal deficit has significantly narrowed. In fact, the budget has a primary surplus. But it exacted a high price, for government, aside from increasing taxes, cut productive spending.

The passage of new taxes should result in a better fiscal picture without sacrificing government spending. Both the increase in the rate of the value-added tax and the adjusted excise tax on sin products have contributed to the fiscal turnaround. Taxes have increased, but collection is below the avowed goals or targets.

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