New revenue measures would allow the government to spend more on important projects, which, the Finance department argued, would have a greater impact on economic growth than tax cuts.

In a presentation to the House of Representatives last week, Finance Secretary Margarito B. Teves said every P20 billion spent on public investments could raise the nominal gross domestic product (GDP) by P64.4 billion, while every P20 billion worth of foregone revenues from tax cuts would only yield a GDP increase of P35.9 billion.

"Public spending has greater impact on growth than tax cuts," Mr. Teves’ presentation read.

"We critically need the help of Congress in having revenue enhancement measures, which require legislation... Stronger government revenues would help us achieve a respectable level of economic growth, prepare us for the upturn and provide resources for more countryside projects."

Finance Undersecretary Gil S. Beltran explained that while tax cuts could increase the money that taxpayers can spend, it would be more beneficial to the rich who may opt to put their cash in banks.

"In a way, a tax cut could spur economic activity. But this would benefit the rich more. The poor pay little or no taxes. The rich may just keep the money or place them in the banks," he said in a phone interview last Friday.

"If the government spends, the money goes directly to the economy. Government spending creates jobs and taps local products. It will definitely have a higher and bigger impact than tax cuts."

Mr. Beltran said they are continuously asking Congress to pass their proposed revenue measures since too much dependence on borrowings could increase the deficit and raise interest rates.

He also warned that too much tax cuts could also affect the government’s revenue collection.

"If that happens, we may not be able to spend as much as we want. If we continue to pursue spending without regard to revenue collection, we have to borrow more. This would raise interest rates and increase the cost of production," he said.

The Finance official added that if the government relies more on tax cuts rather than on public investments, this would effectively slow down the effect of the government’s pump-priming efforts.

"[If tax cuts are preferred over spending], the impact on growth would be less At this point in time when we are experiencing a global economic crisis, we want measures that would have the strongest impact on growth," Mr. Beltran said.

The Finance department has been pushing for the passage of three measures that aim to raise revenues to support the government’s economic pump-priming activities.

These measures are the simplified net income taxation scheme which is expected to yield P5.24 billion a year, rationalization of fiscal incentives which is expected to generate savings worth P10 billion, as well as the restructuring of taxes on tobacco and alcohol which is projected to generate as much as P21 billion in the first year of implementation.

The government has been pushing for these measures to limit this year’s deficit, which is expected to hit P199.2 billion, equivalent to 2.5% of GDP.

The measures, save for the restructuring of taxes on alcohol and tobacco, have been approved on third reading by the House of Representatives.

Apart from the said measures, the Finance department is also supporting the placement of metering devices that will link the Bureau of Internal Revenue and the National Telecommunications Commission with telecommunication firms to capture their revenue streams from the services they provide, in order to ensure proper collection of taxes. This proposal is expected to generate around P7 billion in additional revenues per year.

It is also pushing for the exemption of BIR and the Bureau of Customs from the Salary Standardization Law in a bid to curb corruption among revenue collectors.

Congress, however, has passed laws that the Finance department said would lead to revenue losses such as the Tourism Act (P6 billion a year), the tax relief law (P26 billion), and the Personal Equity Retirement Account Law (P7 billion).

The country’s nominal GDP is expected to reach P8.4 trillion this year from P7.5 trillion last year. The government expects the economy to grow by 3.1%-4.1% despite the global recession which has caused job closes and company closures worldwide.

The government’s total revenues are projected to reach P1.296 trillion this year.

Expenditures, on the other hand, are expected to hit P1.495 trillion as the government spends more to prod economic activity amid the global downturn. — Alexis Douglas B. Romero