Government’s revenue problem

The Freedom from Debt Coalition (FDC) said recently that the administration of Gloria Macapagal-Arroyo is the worst among the post-Edsa 1 administration when it comes to government’s revenue generation efforts.

Despite the fact that the reformed value-added tax, or Republic Act 9337 was enacted during Arroyo’s second term, her administration’s average revenue-to-GDP score, at 15.51 percent, is less than Cory Aquino’s, Fidel Ramos’s and Joseph Estrada’s.

Etta Rosales, FDC’s vice president, noted that the Arroyo administration is also the biggest seller of government assets among post-Edsa 1 presidents, with her P90.62 billion in 2007. Yet, she still got the lowest revenues among them.

“Despite R-VAT and privatization, revenue effort didn’t pick up much. Was this because gross domestic product [GDP] under Mrs. Arroyo is unrealistically high?” Rosales said.

The FDC also called for a comprehensive review of the country’s entire tax structure due to low revenues despite regressive taxation.

Revenue shortfalls across agencies of government are expected due to the global financial crisis, which might still take longer to resolve.

With recent natural disasters striking the Philippines, and with recession and unemployment hitting its global trading partners, the government faces a massive challenge of balancing low revenues and the high expenditures of government.

Take for instance, unemployment in the US, one of the country’s primary trading partners, which recently hit a 26-year high of almost 9.8 percent. Besides the unemployed, there are those in the US who are too discouraged to look for jobs and have taken themselves out of the labor force, those who are relegated to work part-time and/or with lesser pay, and those who are fearful they will lose their jobs soon.

All these Americans—the unemployed, the underemployed and the job-anxious—are not going to buy anything soon. They are going to save whatever money they have, which means businesses won’t have a lot of customers and won’t do a lot of investing themselves. This would certainly affect the Philippines because most of the semiconductors, electronics, garments and textiles manufactured here are exported to the United States. With less demand, there’ll be less export revenue.

The government again has to do more with less.

Finding more money at a time when politicians are not too keen on passing new taxes on the people because of the upcoming elections will probably force cuts or “reallocations” for some segments.

The proposed tax on text messaging will not likely pass Congress. Also pending before Congress is the measure to raise excise taxes for alcohol and cigarettes, and another measure to tax excess corporate profits, which Senate President Juan Ponce Enrile suggested.

Whether these measures will pass despite the heavy lobbying by the same businessmen who will be funding the candidacies of many in Congress, we will have to see.

For the meantime, as it stands, the government will probably have to rely on more borrowings to finance its programs.

As it is, people here don’t enjoy a high level of social services. As it is, there’s more money from the national budget going into debt servicing than to education, health and environmental protection.

The people pay their taxes, but they don’t feel the impact of government services. Paying their taxes has not improved their lot in life.

What the government can do is widen the tax net rather than squeeze those who are already paying their taxes.

The government, instead of being more committed to increased revenue generation through taxation, must plug the loopholes in tax collection and create a small business- and investment-friendly tax environment in the country to encourage entrepreneurship which is fundamental to the growth of the economy.

What the government can do is reduce corruption which easily eats up about 30 percent of the national budget. With another 40 percent going to automatic debt appropriations, that leaves only about 30 percent of the national budget for government maintenance, government programs and social services.

It’s no wonder that when disasters like killer storms strike the Philippines, we have to beg the international community for money for relief efforts. –Ernesto F. Herrera, Manila Times