Fix leaks first before hiking taxes - Aquino

Posted at 06/29/10 4:36 PM

MANILA, Philippines - Incoming Philippine president Benigno Aquino III, who will be sworn in as the Southeast Asian country's 15th president on June 30, said that forecasts of the outgoing government will be reviewed.

He also said he would first fix tax collections before looking at any tax increases.

On Tuesday, Aquino announced the members of his economic team.

Cesar Purisima will be his Finance Secretary.

Florencio Abad, campaign manager of Aquino's political party and former education secretary, will head the budget department while economist and academician Cayetano Paderanga will be economic planning chief.

Aquino's cabinet appointments are seen as an indicator of policy priorities as he faces a large budget deficit, a need to rebuild investor and public confidence in institutions and governance, reduce poverty and resolve long-running insurgencies.

In the first quarter, the domestic economy expanded by 7.3% from a year earlier, the fastest pace of growth in more than nine years, due largely to increased government spending.

The government however, raised its first half deficit ceiling to P178.5 billion, after exceeding the original target only five months into the year, and its full-year deficit hiked to P300 billion.

"He got the right people for the right job. These are people with extensive experiences, even those who were former cabinet secretaries. These are people who are not going to go through a honeymoon period anymore; he got people who will work on day one. That is positive," said Jose Vistan, research director of AB Capital Securities.

"For some, these are old hands who had worked for the government so they know the ins and outs of what needs to be done. The information with regards to cabinet appointees were already leaked out.

So yesterday, the equities market reached a two-year high, that might have been the markets way of saying they applaud the appointments," said Vistan.

Aquino reiterated that he is not inclined to raise taxes.

"I have said this before, before raising taxes, we need to look at tax collections, the first step is to fix tax collections."

Aquino said he me will make good his campaign vow  to go after big tax evaders and corrupt officials of tax collection agencies such as the Bureau of Internal Revenue and the Bureau of Customs.

"There is already a file of who these people are, there are procedures and processes on how to go after them. We want to show an example that we can plug the leaks."

He said he hopes that with current loopholes fixed, there will be enough revenue, not necessarily to plug the budget deficit, but to at least be "fiscally responsible."

"We cannot keep raising taxes without taking care of the loopholes. The deficit can be financed by debt, but we can borrow without accepting onerous terms," said Aquino.

At the same time, Aquino said he is not ruling out tax rate increases, but said this will not be the first resort.

Edward Teather, an economist at UBS Singapore said that at the end of the day, everything will depend on the policies put forward and negotiated with Congress for the broader support needed.

"To me, you've got a little bit more of a wait-and-see game and see what policies are announced, put forward and supported. It's all about commitment to improve the business environment and encourage domestic investment."

Teather said that the budget deficit doesn't necessarily need to be brought down aggressively, "but certainly the Philippine economy could benefit from increased revenue growth, increased revenue-to-GDP, to support ongoing infrastructure and social investment."  - with a report from Reuters