Gov’t needs to rush fiscal consolidation—AMRO

The ASEAN+3 Macroeconomic Research Office (AMRO) said the Marcos administration needs to expedite the pace of fiscal consolidation given the national government’s tight buffer to absorb future shocks.

In AMRO’s Annual Consultation Report released on Wednesday, July 20, the think tank raised concerns over the government’s narrowed fiscal policy space, with its debt ratio expected to peak at 64.6 percent next year.

“In view of concerns over the narrowed fiscal policy space and the limited buffers to address future shocks, the pace of fiscal consolidation should be expedited once private-sector growth becomes self-sustaining,” AMRO said in the report.

“Fiscal consolidation can be achieved by improving spending efficiency and enhancing revenue collection,” it added.

However, AMRO said that fiscal consolidation must not undermine economic recovery, while enhancing the government’s fiscal sustainability.

Under the current government’s program, the Marcos administration is planning to reduce the budget deficit gradually from 8.6 percent of gross domestic product (GDP) last year to 4.1 percent by 2025.

At the same time, government plans to bring down its debt ratio to the 52 percent level by the end of the Marcos administration.

“The gradual reduction of the fiscal deficit is deemed reasonable as the growth momentum would remain moderate in the near term and thus would need continued reinforcement,” AMRO said.

To improve efficiency of fiscal programs, AMRO said the government should only invest in "more economically viable infrastructure projects” which are selected by rigorous feasibility studies

“Non-essential and ineffective fiscal programs should be revamped or terminated through zero- based reviews, and the resources redirected to the national development priorities,” the think tank said.

On the revenue side, AMRO said the government needs to continue strengthening revenue-enhancing measures, including broadening the tax base, especially for value-added tax (VAT).

To improve efficiency of tax administration, AMRO said the government should introduce digitalization of tax and customs duty collection.

Meanwhile, AMRO said the implementation of the Corporate Recovery and Tax Incentives for Enterprises law will encourage more investment from the private sector, but it will also continue to constrain corporate income tax revenue in the next few years.

“Raising excise tax rates and introducing new taxes on digital services could also be considered,” it added.