By means of Luisa Maria Jacinta C. Jocson, Reporter
WITH the Philippines’ Fiscal conThe International Monetary Fund (IMF) said solidity continues to slow this year introduce new tax measures.
“On fiscal policy, we see fiscal consolidation continuing in 2024, although it will be more moderate than anticipated in previous projections,” IMF Mission Chief Elif Arbatli Saxegaard said. a press letterFon Wednesday.
“In terms of expenditure, we actually see more expenditure on the public side. We see this being offset or financed by higher revenues,” she added.
The IMF expects the budget deficit to reach 5.6% of gross domestic product (GDP) this year and in 2025. However, it noted that its deficit definition differs from that of the National Government (NG) as it is a diFferent standard in recording the deFIT
“Based on our definition of the deFicit, we expect the theFI want to go from 6.1% in 2023 to 5.6% this year remain at 5.6% in 2025,” she said.
The NG has set the ceiling for the budget deficit this year at 5.6% of GDP, equivalent to 1.48 trillion euros. 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 that will create more Fiscal space.
“In the medium term, the F“Iscal consolidation plans remain appropriate and must be supported by a sustainable plan to increase tax revenues and implement spending reforms,” Ms. Saxegaard said.
The Philippine government may explore excise taxes as a revenue-raising optionFcient and fast,” she said.
Last year, then-Treasury Secretary Benjamin E. Diokno pushed for an excise tax on “junk food” and higher taxes on sweetened drinks. These taxes were expected to raise up to €76 billion in the first year of implementation.
However, the Department of Finance (DoF) said earlier this year that there are no plans to introduce any new tax measures beyond those already under consideration by Congress.
“As for other areas, many different options can be considered in the medium term. One area is improving the efficence of the value added tax (VAT) system, said Ms Saxegaard.
Last year, the DoF said the Philippines has one of the lowest VAT efficiencies in Southeast Asia, despite having the highest VAT rate in the region at 12%.
From 2016 to 2020, the country collected an average of €723 billion in VAT, which is only about 40% of expected VAT collection.
Ms Saxegaard also pointed out the possibility of introducing a carbon tax.
“We understand that there are also various considerations here. The cost of power and electricity in the Philippines is quite high,” she said.
The finance department has been studying various carbon pricing options for the country, including a carbon tax and an emissions trading system (ETS). This is because it wants to encourage companies to switch to sustainable practices.
The Philippines currently has no explicit form of carbon pricing.
“As a growing economy, the Philippines must weigh several considerations when considering a carbon tax. It is one option they are considering that could support the transition to a green economy to promote renewable energy and shift consumption patterns from polluting energy to more green energy sources,” said Ms Saxegaard.
“In that respect it could remain on the table. But it is a complicated issue, so we have to think about it very carefully.”
Meanwhile, Ragnar Gudmundsson, IMF representative for the Philippines, said the government should also pay close attention to providing tax breaks.
“What we would also recommend is to continue to closely monitor the fiscal stimulus measures as they are being delivered, and ensure that they are effectively contributing to additional investment and momentum for growth.”
“There can also be a sense of provision in these incentives so that ultimately, once those investments have come to the Philippines and contributed to growth and are sustainable over time, there will also be a contribution through for example income tax. over time.”
‘NEUTRAL’
For next year, the IMF said the FThe iscal position will be ‘neutral’.
“That means that the fiscal policy impulse is neither contractionary nor over-expansive,” Ms. Saxegaard said.
Financial conditions are also expected to improve as both the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve are expected to continue easing.
BSP Governor Eli M. Remolona Jr. has said the central bank could further cut rates in the fourth quarter, possibly by up to 50 basis points. The remaining Monetary Board meetings are on October 16 and December 19.
“All these developments in the financial sector, including the reduction in reserve requirements, can support more favorable financial conditions. That will support a revival in investment, private investment and some recovery in private consumption next year Fiscal side to be a little more neutral,” Ms. Saxegaard said.
The BSP will cut major banks’ reserve requirement ratios (RRR) by 250 basis points to 7% from 9.5% later this month.
SLOW BUDGET RECOVERY
In a separate report, Fitch Solutions unit BMI said the recovery of the Philippines’ fiscal position will be more gradual.
It said the proposed P6.352 trillion national budget marks an increase in government spending, which will derail consolidation efforts.
“This will undo the country’s fiscal consolidation efforts. Admittedly, the Philippines’ fiscal recovery has already lagged behind that of the region, and the latest budget certainly does not help this matter,” the report said.
BMI said the government “will not meet” its budget targets and predicts the budget deficit will reach 5.9% of GDP this year.
The NG will also struggle to reduce debt levels, BMI said.
“While authorities aim to reduce public debt to GDP to 55.9% by 2028, we believe this is unlikely to be achieved. To achieve this, the deficit must be maintained at 3.6% of GDP over the next three years (2026-2028),” the report said.
“But this would, based on our estimates, necessitate cuts of almost 1.0 percentage points, making it challenging for the current government to balance its economic agenda.”
The latest data from the Department of Finance shows that NG’s outstanding debt fell to P15.55 trillion at the end of August.
In the first half the debt ratio was 60.9%. The government expects the debt ratio to end this year at 60.6% of GDP.
“Instead, we forecast that the budget deficit will average 4.6% over the same period. As a result, public debt will decline more slowly, eventually reaching 58.8% of GDP in 2028.”
On the other hand, BMI noted that the government could exceed its revenue targets.
“Comparatively, the revenue targets have been relatively watered down. The government forecasts that revenue collection will fall from 16.1% of GDP in 2024 to 15.8% in 2025. In our view, this is a bit too conservative, especially when macroeconomic conditions will improve next year.”
In the eight-month period, revenue receipts rose 15.91% to P2.99 trillion from P2.58 trillion last year.
“Philippine policymakers tend to underestimate their revenue targets, as we have seen in the past two years. Currently, we expect revenue collection to be around 16% of GDP, which is already higher than the government’s expectation of 15.8%. If revenues exceed even our forecasts, we can expect a smaller budgetFIT.”