Folly of ‘no-new-tax’ policy

Philippine President Benigno S. Aquino III

What should President Aquino do when his “no-new-tax” policy gets in the way of meeting his administration’s goal of achieving sustained. strong, and inclusive growth? What should he do when this inappropriate tax policy gets in the way of creating the fiscal space needed to prepare the country for future crises and disasters? The sensible response is to reconsider — quickly and decisively.

Most knowledgeable analysts agree that the President’s “no-new-tax” policy is getting in the way of his promised 7 to 8% economic growth. His administration simply does not have the resources to deliver on the needed public infrastructure (despite the promise of public-private partnership initiative), on social spending (K+12 basic education, universal health care, expanded cash transfer program, modern armed forces, and others).

The medium-term fiscal outlook is not promising. After a brief gain this year (largely because of a small budget that was asked by the President and approved by Congress), budget deficits are likely to soar in future years, reaching as high as 5 to 6% from 2012 to 2016.

I have done a first-order approximation of how the national government medium-term budget (from 2011 to 2016) would look like under conservative spending assumptions but with unchanged tax structure.

Read more at Business World

Photo credit: Malacañang Photo Bureau

Con Yap

  • UP nn grad ,

    Two things that Benjamin Diokno (author of the article) said that I agree with.

    (1) Leadership required PresNoynoy to initiate tax-increases in the first months of his administration. Also that proposals for tax-increases should always be accompanied by proposals for big social programs or key projects (like increased spending for schools or education initiatives or even more weapons for PNP and AFP or surveillance equipment for the NBI or airport security).

    (2) Yearly property tax (on vehicles (e.g. cars, motorcycles, helicopters), real-estate (e.g. condos, houses, farms) with a progressive tax-structure. For example, 0% on first P2Million, 1.5% on property between P2Million and P15million, and 4% on the portion of property in excess of P15Million (with members of Congress and Malacanang (including Cabinet secretaries and UseC’s) being tax-exempt).

    • Bert ,

      Tax decision is more a political rather than a fiscal move. At times, the political opposition would want the administration to impose more taxes to erode the popularity of the sitting president for their own political gain.

      There are many ways to skin a cat as there are ways to tackle the problem of fiscal deficit. Here are some of them:

      -Wise and proper allocations and strict monitoring of all government budgetary expenses.
      -Minimization of graft and corruption in all government agencies (projects and contracts) to stop leakages of precious government funds.
      -Increase BIR and BOC collections by eradicating connivances among personnel and clients.
      -Imposing new taxes.

      I’m no tax nor a fiscal wise guy, but imposing more taxes in my book is the least priority in my list.

      • UP nn grad ,

        PresiNoynoy’s “no new tax” policy is just Malacanang being consistent with his pledge to the members of the Makati Business Club who bankrolled presi-Noynoy’s campaign. The need of the voters (for more spending on schools, more low-cost loans for small enterprises, etc) will have to wait for 2016.