By Luisa Maria Jacinta C. Jocson, A reporter
NE Philippines’ fscale conThe decline in economic strength this year, the International Monetary Fund (IMF) said the country still has an opportunity introducing new tax systems.
“On the monetary policy side, we see fiscal consolidation continuing in 2024, although it will be more limited than previously thought,” IMF chief Elif Arbatli Saxegaard said in a statement. press briefon Wednesday.
“Regarding spending, we actually see a lot of spending on the public side. We see that being fixed or financed by higher revenues,” he added.
The IMF projects the fiscal deficit to reach 5.6% of gross domestic product (GDP) this year and in 2025. However, it noted that its deficit is different from that of the National Government (NG) as it uses di.fferent standard in capturing defsnow.
“Based on our definition of defiit, we are waiting for the deffrom 6.1% in 2023 to 5.6% this year again remain at 5.6% in 2025,” he said.
NG put its budget deficit at 5.6% of GDP this year, equivalent to P1.48 trillion. Next year, the deficit is expected to reach 5.3% or P1.54 trillion.
The IMF noted that there is room for additional tax measures to create more fiscal area.
“In the medium term, i fIscal integration programs are always appropriate and should be supported by a sustainable plan to increase tax revenue and make changes in costs,” said Ms. Saxegaard.
The Philippine government can consider excise tax as a revenue generation option “suffvery quickly again,” he said.
Last year, then-Treasury Secretary Benjamin E. Diokno imposed a tax on “junk food” and a higher tax on sugary drinks. These taxes are expected to generate P76 billion in the first year of implementation.
However, the Department of Finance (DoF) earlier this year said there were no plans to introduce new tax measures other than those pending in Congress.
“Regarding other areas in the medium term there may be many different options that can be considered. Another place to improve ieffthe strengthening of the value-added tax (VAT) system,” said Ms. Saxegaard.
Last year, the DoF said the Philippines has one of the lowest VAT rates in Southeast Asia despite having the region’s highest VAT rate of 12%.
From 2016 to 2020, the country collected an average of P723 billion in VAT, which is only 40% of the expected VAT collection.
Ms. Saxegaard also noted the possibility of following a carbon tax.
“We understand that there are also different trade-offs at play here. The cost of electricity and electricity in the Philippines is very high,” he said.
The Ministry of Finance has been researching different options for setting carbon prices in the country, including a carbon tax and an emissions trading system (ETS). This is as it aims to encourage businesses to switch to sustainable practices.
The Philippines currently does not have a clear form of carbon pricing.
“As a growing economy, the Philippines should consider different things when considering a carbon tax. It is one of the options for their consideration that can support the transition to a green economy to encourage renewable energy, to shift consumption patterns away from polluting energy to other green energy sources,” said Ms. Saxegaard.
“That may remain on the table. But it is a strange issue, so it must be looked at carefully.”
Meanwhile, IMF Representative in the Philippines Ragnar Gudmundsson said the government should also pay more attention to providing tax incentives.
“What we would also recommend is to continue to carefully monitor tax incentives as they are offered and ensure that they effectively contribute to increased investment and growth momentum.”
“There may also be a sense of provision in these incentives so that eventually, once those investments have arrived in the Philippines and have an impact on growth and are sustainable over time, there will be a contribution, for example, through income tax. over time.”
‘INTERMEDIATE’
Next year, the IMF said fiscal status will be “neutral.”
“That means that the goal from the fiscal policy is not decreasing and not increasing,” said Ms. Saxegaard.
Financial conditions also appear to be improving as both the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve are expected to continue to ease.
BSP Governor Eli M. Remolona, Jr. he said the central bank could cut rates further in the fourth quarter, possibly by as much as 50 bps. The remaining Finance Board meetings are on Oct. 16 and Dec. 19.
“All these developments in the financial sector, including the reduction of budget requirements, can support better financial conditions. That will support investment mobilization, private investment, and some take-up in private consumption next year, allowing fimpartial side,” said Ms. Saxegaard.
The BSP will reduce the reserve requirements ratios (RRR) of central banks by 250 bps to 7% from 9.5% later this month.
A LITTLE FINANCIAL RETURN
In a separate report, BMI’s Fitch Solutions unit said the Philippines’ recovery in its fiscal position will be gradual.
It said the proposed P6.352-trillion national budget marks an increase in public spending, which will hamper consolidation efforts.
“This will set back the country’s efforts to mobilize funds. Admittedly, the financial stability of the Philippines is already lagging behind its regional counterparts and the latest budget does not help this cause,” he said.
BMI said the government will “fall short” of its fiscal targets, pointing out that the budget deficit will reach 5.9% of GDP this year.
NG will also struggle to reduce debt levels, says BMI.
“Although the authorities aim to reduce public debt as a share of GDP to 55.9% by 2028, we believe that this is unlikely to be achieved. To achieve this, the deficit must be kept at 3.6% of GDP in the next three years (2026-2028),” he said.
“But this would require spending cuts of about 1.0 percent, based on our estimates, making it a challenge for the current administration to balance its economic agenda.”
The latest data from the Treasury showed that NG’s outstanding debt fell to P15.55 trillion as of late August.
In the first half, the debt-to-GDP ratio stood at 60.9%. The government expects the debt ratio to end at 60.6% of GDP this year.
“Instead, we forecast the budget deficit to average 4.6% over the same period. As a result, public debt will gradually decrease, eventually reaching 58.8% of GDP in 2028.
On the other hand, BMI noted that the government could exceed its revenue targets.
“The revenue target is very small in comparison. The government predicts that revenue collection will decrease from 16.1% of GDP in 2024 to 15.8% in 2025. In our view, this is not very good especially if the macroeconomic situation will improve next year.”
In the eight-month period, revenue collection jumped 15.91% to P2.99 trillion from P2.58 trillion last year.
“Philippines policymakers tend to downplay their investment targets, as seen in the past two years. Currently, we estimate that revenue collection will be around 16% of GDP, which is already higher than the government’s expectation of 15.8%. If the income exceeds our estimates, we can expect a smaller budgetffreeze.”
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