The Brewing Fiscal Crisis

The national government’s total debt stood at P3.36 Trillion as of the end of 2003, split almost equally between foreign and domestic liabilities. This was as large as 78 percent of the Gross Domestic Product (GDP) in 2003. The outstanding debt of the public sector as a whole (the Consolidated Public Sector Deficit) was running at more than 130 percent of the GDP. The two largest failures that led to the present fiscal difficulties are first, the failure of the tax structure and bureaucracy, and second, the inefficiency and lack of accountability on the part of public corporations. In brief, the main causes of the fiscal crisis are:

1. Revenues have been falling sharply over the years in the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC). And because of graft corruption, taxes are being shaved by tax agents and collectors. Even more the public is revolting against state corruption by evading tax payment; and

2. The government has been assuming the liabilities of government-owned and/or controlled corporations (GOCCs). The subsidies are huge and servicing the liabilities involves a sum equal to 3 percent of the gross domestic product (GDP).

For possible revenues and cost-saving measures the following were recommended:

1. The taxes on cigarettes and alcohol have not been adjusted for inflation since the tax reforms in 1997.

2. Value-added tax (VAT) covers professionals but exemptions were given to doctors, lawyers, even law firms, and show business professionals.

3. Motor vehicles got away with tax cuts also. In the past, the government was willing to tax cars 15 percent, and to tax luxury large-displacement vehicles 50 – 100 percent. Today the minimum tax on new vehicles is just 2 percent. The minimum should be 10 percent.

4. The government should also increase the registration fees on motor vehicles, differentiating between private and public vehicles. To lighten the burden for jeepney and bus drivers, replace the universal drug testing with random sample testing.