BOLD tax and spending reforms could unlock fiscal gains equivalent to as much as 7.1 percent of gross domestic product (GDP) annually for the Philippines, World Bank officials said on Monday.
The estimate of a 3.6- to 7.1-percent gain were contained in the bank’s “Building on Reform: Public Finance for a Rising Philippines” report, which said reforms could help create fiscal space for health, education, infrastructure and social protection while reducing public debt.
“The 3.6 percent to 7.1 percent of GDP in potential fiscal gains — hundreds of billions of pesos already within the system’s reach — can fuel the next chapter of that journey,” said Zafer Mustafaoglu, World Bank division director for the Philippines, Malaysia and Brunei, in a briefing.
Three areas for reform were identified: creating fiscal space through immediate efficiency measures, closing revenue and spending gaps, and improving the targeting of health, education and social protection programs.
Among the measures that could quickly create fiscal space are consolidated government procurement, easier tax payments, streamlined corporate tax incentives and tighter limits on unprogrammed appropriations.
Procurement reform alone could generate savings of up to P435 billion annually, the World Bank estimated.
The bank also said the Philippines could raise more revenue without increasing statutory tax rates by improving tax collection and reducing noncompliance.
World Bank Senior Economist Jaffar Al-Rikabi said the country’s tax gap was estimated at about 11 percent of GDP across value-added, corporate income and personal income taxes.
“If you are able to reduce this tax gap, basically, say by half, you’re going to get around 5.5 percent of tax to GDP without increasing any statutory rates,” Al-Rikabi said.
Improving collection efficiency could also make the tax system more equitable by ensuring that those who are supposed to pay taxes are more effectively brought into the system, he added.
The World Bank report also recommended rationalizing tax exemptions and incentives based on their economic benefits, noting that some value-added tax exemptions intended to support poor households may disproportionately benefit higher-income consumers.
On public spending, the World Bank said the government could generate savings through more strategic procurement and better execution of infrastructure projects.
Al-Rikabi said consolidating procurement for commonly purchased goods and services could save the government about 1.8 to 2 percentage points of GDP.
The report also called for better targeting of social protection programs. It said a common registry could allow the government to expand effective programs and reduce fragmentation without necessarily increasing overall allocations.
The 4Ps program was tagged as being more effective in reducing poverty than several other social assistance measures examined by the World Bank.
The World Bank cautioned, however, that fiscal consolidation should not come at the expense of productive public investment.
It presented scenarios showing that achieving the same fiscal deficit target through cuts in public investment could result in weaker economic growth and higher debt than a “high-quality adjustment” that protects productive investment while improving revenue collection and spending efficiency.
“The core message of this report is that fiscal sustainability and inclusive growth are not competing objectives; they can be pursued together,” Mustafaoglu said. NAZYLEN JOY MABANGLO
