Debt to GDP ratio highest in 17 years

The outstanding debt of the Philippines has bloated to 63.5 percent of the economy, the highest in 17 years, putting pressure on the incoming administration to jack up taxes on multiple goods, including carbon waste, sin products, and sugary drinks.

The Bureau of the Treasury yesterday reported that the debt level, when measured against the gross domestic product (GDP), spiked to a 17-year high as of the first quarter.

The Arroyo administration registered a debt-to-GDP ratio of 65.7 percent in 2005 after recording an all-time high of 71.6 percent the previous year.

Rizal Commercial Banking Corp. chief economist Michael Ricafort told The STAR that the next administration may have to explore tax measures to widen its fiscal space. For one, the real property valuation reform and the Passive Income and Financial Intermediary Taxation Act (PIFITA) should be approved by the coming Congress.

Ricafort said updating the real estate valuation would increase the property taxes collected by the government to the benefit of state resources. The real property valuation reform seeks to put up a single base in assessing real estate to improve tax collection.

On the other hand, PIFITA will apply a standard rate of 15 percent on interest income, dividends and capital gains, as well as eliminate the tax on initial public offerings, to simplify taxation in the capital markets.

“There is a need to intensify tax revenue collections, as well as new tax reform measures, to be able to better manage the country’s fiscal performance, especially overall debt management, to make it more sustainable over the long term and for the coming generations,” Ricafort said.

“Other measures include anti-wastage, anti-leakage, anti-corruption measures to better manage the government’s expenses, (as) it starts and ends with good governance as a matter of policy,” he said.

University of the Philippines labor and industrial relations professor Rene Ofreneo told The STAR that the next administration should look into slapping a carbon tax to raise new revenues. He said the carbon tax could be computed based on the carbon emission of a firm.

In February, Finance Secretary Carlos Dominguez III said the government is studying numerous taxes, including on carbon waste, which can be imposed by the next administration. Ofreneo said the government could use the carbon tax to compel firms to shift to renewable sources of energy.

Also, Ofreneo said the government should reduce its financing for big-ticket projects and let the private sector expand its role in infrastructure buildup.

Ofreneo said state resources, in turn, could be redirected to programs that generate employment opportunities, drive economic activities and, in the end, bring in additional revenues.

Based on records, infrastructure spending amounted to P1.12 trillion or 5.8 percent of the GDP last year, and is penciled to hover above five percent of the GDP until 2024.

Ricafort also floated the idea of increasing the excise taxes yet again on sin products and sugar-sweetened beverages. The Tax Reform for Acceleration and Inclusion Law imposed a tax of P6 per liter tax on drinks containing caloric and noncaloric sweetener and P12 per liter tax on beverages with high-fructose corn syrup.

According to Ricafort, the government should double down in slashing the debt-to-GDP ratio to below 60 percent, the global standard observed by credit monitors and multilateral institutions. If the debt level stays above 60 percent, the economy risks losing its favorable credit ratings.

“Further reduction of the debt-to-GDP ratio, in view of the international threshold of 60 percent, would help keep the country’s relatively favorable credit ratings at around one to three notches above the minimum investment grade,” Ricafort said.

In the worst case event that the Philippines loses its positive credit ratings, the government will be forced to borrow at increased rates and unfavorable terms.

The national debt spiked by 18 percent to a record P12.68 trillion as of March from P10.77 trillion a year ago, on double digit growths in both domestic and external credit.