Fiscal policy of the Philippines

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Fiscal policy refers to the "measures employed by governments to
stabilize the economy, specifically by manipulating the levels and
allocations of taxes and government expenditures. Fiscal measures
are frequently used in tandem with monetary policy to achieve
certain goals."[1] In the Philippines, this is characterized by
continuous and increasing levels of debt and budget deficits, though
there have been improvements in the last few years.[2] A comparative graph of Revenue and Tax Effort from 2001-2010[3]

The Philippine governments main source of revenue are taxes, with

some non-tax revenue also being collected. To finance fiscal deficit
and debt, the Philippines relies on both domestic and external
sources.
Fiscal policy during the Marcos administration was primarily
focused on indirect tax collection and on government spending on
economic services and infrastructure development. The first Aquino
administration inherited a large fiscal deficit from the previous
administration, but managed to reduce fiscal imbalance and improve
tax collection through the introduction of the 1986 Tax Reform
Program and the value added tax. The Ramos
administration experienced budget surpluses due to substantial
gains from the massive sale of government assets and strong foreign A comparative graph of Tax and Non-Tax Revenue contribution from
investment in its early years. However, the implementation of the 2001-2010[4]
1997 Comprehensive Tax Reform Program and the onset of
the Asian financial crisis resulted to a deteriorating fiscal position in The Philippine government generates revenues mainly through
the succeeding years and administrations. The Estrada personal and income tax collection, but a small portion of non-tax
administration faced a large fiscal deficit due to the decrease in tax revenue is also collected through fees and licenses, privatization
effort and the repayment of the Ramos administrations debt to proceeds and income from other government operations and state-
contractors and suppliers. During the Arroyo administration, the owned enterprises.
Expanded Value Added Tax Law was enacted, national debt-to-GDP Tax Revenue[edit]
ratio peaked, and underspending on public infrastructure and other
capital expenditures was observed. Tax collections comprise the biggest percentage of revenue collected.
Its biggest contributor is the Bureau of Internal Revenue (BIR),
Contents followed by the Bureau of Customs (BOC). Tax effort as a percentage
of GDP has averaged at roughly 13% for the years 2001-2010.[5]
[hide]
Income Taxes[edit]
1 Revenues and Funding Income tax is a tax on a person's income, wages, profits arising from
o 1.1 Tax Revenue property, practice of profession, conduct of trade or business or any
1.1.1 Income Taxes stipulated in the National Internal Revenue Code of 1997 (NIRC), less
1.1.2 E-VAT any deductions granted.[6] Income tax in the Philippines is a
progressive tax, as people with higher incomes pay more than people
1.1.3 Tariffs and Duties
with lower incomes. Personal income tax rates vary as such:[7]
o 1.2 Non-Tax Revenue
1.2.1 The Bureau of Treasury
1.2.2 Privatization Annual Taxable Income Income Tax Rate
1.2.3 PAGCOR
2 Spending, Debt, and Financing
o 2.1 Government Spending and Fiscal Imbalance Less than 10,000 5%
o 2.2 Financing and Debt
3 History of Philippine Fiscal Policy
o 3.1 Marcos Administration (1981-1985)
Over 10,000 but not over 500 + 10% of the excess over
o 3.2 Aquino Administration (1986-1992)
30,000 10,000
o 3.3 Ramos Administration (1993-1998)
o 3.4 Estrada Administration (1999-2000)
o 3.5 Arroyo Administration (2002-2009)
4 References Over 30,000 but not over 2,500 + 15% of the excess over
5 External links 70,000 30,000

Revenues and Funding[edit]

Over 70,000 but not over 8,500 + 20% of the excess over
140,000 70,000
 revenue by issuing, servicing and redeeming government securities,
and by controlling the Securities Stabilization Fund (which increases
Over 140,000 but not over 22,500 + 25% of the excess over
the liquidity and stabilizes the value of government securities[14])
250,000 140,000
through the purchase and sale of government bills and bonds.[15]
Privatization[edit]

Over 250,000 but not over 50,000 + 30% of the excess over Privatization in the Philippines occurred in three waves: The first
500,000 250,000 wave in 1986-1987, the second during 1990 and the third stage,
which is presently taking place.[16] The governments Privatization
Program is handled by the inter-agency Privatization Council and the
Privatization and Management Office, a sub-branch of the
125,000 + 32% of the excess over Department of Finance.[17]
Over 500,000
500,000 PAGCOR[edit]
The Philippine Amusement and Gaming Corporation (PAGCOR) is a
The top rate was 35% until 1997, 34% in 1998, 33% in 1999, and government-owned corporation established in 1977 to stop illegal
32% since 2000.[7][8] casino operations. PAGCOR is mandated to regulate and license
gambling (particularly in casinos), generate revenues for the
In 2008, Republic Act No. 9504 (passed by then-President Gloria Philippine government through its own casinos and promote
Macapagal-Arroyo) exempted minimum wage earners from paying tourism in the country.[18]
income taxes.[9]
E-VAT[edit] Spending, Debt, and Financing[edit]
The Expanded Value Added Tax (E-VAT), is a form of sales tax that is
imposed on the sale of goods and services and on the import of
goods into the Philippines. It is a consumption tax (those who
consume more are taxed more) and an indirect tax, which can be
passed on to the buyer. The current E-VAT rate is 12% of
transactions. Some items which are subject to E-VAT include
petroleum, natural gases, indigenous fuels, coals, medical services,
legal services, electricity, non-basic commodities, clothing, non-food
agricultural products, domestic travel by air and sea.[10]
The E-VAT has exemptions which include basic commodities and
socially sensitive products. Exemptible from the E-VAT are:[11]
A comparative graph of National Revenues and Expenditures from
[5]
1. Agricultural and marine products in their original state (e.g. 2001-2010
vegetables, meat, fish, fruits, eggs and rice), including those
which have undergone preservation processes (e.g.
freezing, drying, salting, broiling, roasting, smoking or
stripping);
2. Educational services rendered by both public and private
educational institutions;
3. Books, newspapers and magazines;
4. Lease of residential houses not exceeding 10,000 monthly;
5. Sale of low-cost house and lot not exceeding 2.5 million
6. Sales of persons and establishments earning not more than
1.5 million annually.
A comparative graph of Domestic and External Sources of Financing
Tariffs and Duties[edit] from 2001-2010[5]
Second to the BIR in terms of revenue collection, the Bureau of
Customs (BOC) imposes tariffs and duties on all items imported into
the Philippines. According to Executive Order 206, returning
residents, Overseas Filipino Workers (OFWs) and former Filipino
citizens are exempted from paying duties and tariffs.[12]
Non-Tax Revenue[edit]
Non-tax revenue makes up a small percentage of total government
revenue (roughly less than 20%), and consists of collections of fees
and licenses, privatization proceeds and income from other state
enterprises.[13] A comparative graph of Total National Debt from 2001-2010[19]

The Bureau of Treasury[edit] Government Spending and Fiscal Imbalance[edit]

The Bureau of Treasury (BTr) manages the finances of the In 2010, the Philippine Government spent a total of 1.5 trillion and
government, by attempting to maximize revenue collected and earned a total of 1.2 trillion from tax and non-tax revenues, thus
minimize spending. The bulk of non-tax revenues comes from the resulting to a total deficit of 314.5 billion.[5]
BTrs income. Under Executive Order No.449, the BTr collects
Despite the national deficit of the Philippines, the Department of
Financereported an average of 29.6 billion in Local Government
Unit (LGU) surplus, which is mostly due to an improved LGU
financial monitoring system which the government implemented in
the recent years. Efforts of the monitoring system include "debt
monitoring and creditworthiness monitoring system, effective
mobilization of second generation funds (SGF) to promote LGU
development, and the implementation of a Land Administration and
Management Project (LAMP2) which received a 'very good' rating
from the World Bank (WB) and Australian Agency for International
Development (AusAid)."[20]
Microfinance management in the Philippines is improving
substantially. In 2009, the Economist Intelligence Unit "recognized
the Philippines as the best in the world in terms of its microfinance ASEAN Single-Window Technical Working Group (ASW-TWG), in
regulatory framework." The DOF-National Credit Council (DOF-NCC)
focused on improving the state of local cooperatives by developing a
supervision and examination manual, launching advocacies for these
cooperatives, and pushing for the Philippine Cooperative Code of History of Philippine Fiscal Policy[edit]
2008. A standardized national strategy for microinsurance and the
provisions of grants and technical assistance were formulated.[20]
4. Bond Exchanges
5. Promissory Notes
6. Term Deposits
In 2010, the total outstanding debt of the Philippines reached 4.718
trillion: 2.718 trillion from outstanding domestic sources and 2
trillion from foreign sources. According to the Department of Finance,
the country has recently reduced dependency on external sources to
minimize the risks caused by changes in the global exchange rates.
Efforts to reduce national debt include increasing tax efforts and
decreasing government spending. The Philippine government has
also entered talks with other economic entities, like the ASEAN
Finance Ministers Meeting (AFMM), ASEAN+3 Finance Ministers
Meeting (AFMM+3), Asia-Pacific Economic Cooperation (APEC), and
order to strengthen the countries' and the region's debt management
efforts*.[20]
Marcos Administration (1981-1985)[edit]

Financing and Debt[edit] The tax system under the Marcos administration was generally
regressive as it was heavily dependent on indirect taxes. Indirect
Aside from Tax and Non-Tax Revenues, the government makes use of taxes and international trade taxes accounted for about 35% of total
other sources of financing to support its expenses. In 2010, the tax revenue, while direct taxes only accounted for 25%. Government
government borrowed a total net of 351.646 billion for financing:[21] expenditure for economic services peaked during this period,
focusing mainly on infrastructure development, with about 33% of
the budget spent on capital outlays. In response to the higher global
Domestic External interest rates and to the depreciation of the peso, the government
Sources Sources became increasingly reliant on domestic financing to finance fiscal
deficit. The government also started liberalizing tariff policy during
this period by enacting the initial Tariff Reform Program, which
narrowed the tariff structure from a range of 100%-0% to 50%-10%,
489.844 257.357
Gross Financing and the Import Liberalization Program, which aimed at reducing or
billion billion eliminating tariffs and realigning indirect taxes.[22][23][24]
Aquino Administration (1986-1992)[edit]

Less: 271.246 124.309 Faced with problems inherited from the previous administration, the
Repayments/Amortization billion billion most important of which being the large fiscal deficit heightened by
the low tax effort due to a weak tax system, Aquino enacted the 1986
Tax Reform Program (TRP). The aim of the TRP was to simplify the
tax system, make revenues more responsive to economic activity,
218.598 133.048 promote horizontal equity and promote growth by correcting
Net Financing existing taxes that impaired business incentives. One of the major
billion billion
reforms enacted under the program was the introduction of the
Value Added Tax (VAT), which was set at 10%. The 1986 tax reform
program resulted in reduced fiscal imbalance and higher tax effort in
351.646 the succeeding years, peaking in 1997, before the enactment of the
Total Financing
billion 1997 Comprehensive Tax Reform Program (CTRP). The share of non-
tax revenues during this period soared due to the sale of sequestered
assets of President Marcos and his cronies (totalling to about 20
External Sources of Financing are:[21] billion), the initial efforts to deregulate the oil industry and thrust
towards the privatization of state enterprises. Public debt servicing
1. Program and Project Loans - the government offers project and interest payments as a percent of the budget peaked during this
loans to external bodies and uses the proceeds to fund period as government focused on making up for the debt incurred by
domestic projects like infrastructure, agriculture, and the Marcos administration. Another important reform enacted
other government projects.[20] during the Aquino administration was the passage of the 1991 Local
2. Credit Facility Loans Government Code which enabled fiscal decentralization. This
increased the taxing and spending powers to local governments in
3. Zero-coupon Treasury Bills
effect increasing local government resources.[22][24]
4. Global Bonds
5. Foreign Currencies Ramos Administration (1993-1998)[edit]

Domestic Sources of Financing are[21] The Ramos administration had budget surpluses for four of its six
years in power. The government benefited from the massive sale of
government assets (totalling to about 70 billion, the biggest among
1. Treasury Bonds
the administrations) and continued to benefit from the 1986 TRP.
2. Facility loans The administration invested heavily on the power sector as the
3. Treasury Bills
country was beset by power outages. The government utilized its Cabinet agencies concerned), which with other fiscal reforms paved
emergency powers to fast-track the construction of power projects the way for successive sovereign credit rating upgrades by the time
and established contracts with independent power plants. This Arroyo stepped down in June 2010. These fiscal reforms
period also experienced a real estate boom and strong foreign direct complemented conservative liquidity management by the Central
investment to the country during the early years of the Bank, allowing the peso, for the first time ever, to close even stronger
administration, in effect overvaluing the peso. However, with the at the end of a presidential term than at the start
onset of the Asian financial crisis, the peso depreciated by almost
40%. The Ramos administration relied heavily on external
borrowing to finance its fiscal deficit but quickly switched to
domestic dependence on the onset of the Asian financial crisis. The
administration has been accused of resorting to budget trickery
during the crisis: balancing assets through the sales of assets,
building up accounts payable and delaying payment of government
premium to social security holders. In 1997, the Comprehensive Tax
Reform Program (CTRP) was enacted. Republic Act (RA) 8184 and
RA 8240, which were implemented under the program, were
estimated to yield additional taxes of around 7.4 billion; however, a
decline in tax effort during the succeeding periods was observed
after the CTRP was implemented. This was attributed to the
unfavorable economic climate created by the Asian fiscal crisis and
the poor implementation of the provisions of the reform. A sharp
decrease in international trade tax contribution to GDP was also
observed as a consequence of the trade liberalization and
globalization efforts in the 1990s, more prominently, the
establishment of the ASEAN Free Trade Agreement (AFTA) and
membership to the World Trade Organization (WTO) and the Asia-
Pacific Economic Cooperation (APEC). The Ramos administration
also provided additional incentives to export-oriented firms, the
most prominent among these being RA 7227 which was
instrumental to the success of the Subic Bay Freeport Zone.[22][23]
Estrada Administration (1999-2000)[edit]
President Estrada, who assumed office at the height of the Asian
financial crisis, faced a large fiscal deficit, which was mainly
attributed to the sharp deterioration in the tax effort (as a result of
the 1997 CTRP: increased tax incentives, narrowing of VAT base and
lowering of tariff walls) and higher interest payments given the
sharp depreciation of the peso during the crisis. The administration
also had to pay P60 billion worth of accounts payables left unpaid by
the Ramos administration to contractors and suppliers. Public
spending focused on social services, with spending on basic
education reaching its peak. To finance the fiscal deficit, Estrada
created a balance between domestic and foreign borrowing.[22][23]
Arroyo Administration (2002-2009)[edit]
The Arroyo administration in 2001 inherited a poor fiscal position
that was attributed to weakening tax effort (still resulting from the
1997 CTRP) and rising debt servicing costs (due to peso
depreciation). Large fiscal deficits and heavy losses for monitored
government corporations lingered from 2001-2004 as her caretaker
administration struggled to reverse downward trends. Following her
election in 2004, the national debt-to-GDP ratio reached a high of
79% in that year, before dropping every year thereafter to 57.5% by
2009, her last full year in office. More roads and bridges were built
during the Arroyo administration than the previous three
administrations combined. Educational spending likewise increased
from only Ps 9.3 Billion in 2001 to Ps 22.7 Billion by 2009. The cost
of medicines was brought down by as much as 50% as a result of the
Cheaper Medicines Act and the opening of Botikas ng Bayan and
Botikas ng Barangay, while the ground-breaking conditional cash
transfers (CCT) program was adapted from Latin America to
stimulate positive behaviors among the poor. As a result, the Arroyo
administration contributed to ever-declining levels in self-rated
poverty, from a high of 68% at the start of the Ramons
administration, to around 50% at the end of the Arroyo one. Much of
the fuel for government activism came from an expanded value-
added tax (from 10% to 12%) in 2005 (see final reports of various