MANILA - Unlike other economies, the Philippines' main concern is only marginally related to the global crisis: the ability of the government to collect taxes.

The local economy may have averted the full impact of the global crisis as it managed to post positive growth for the first 2 quarters of the year. But according to Philippine Institute for Development Studies (PIDS) President Josef Yap, the country's declining tax effort may be a major roadblock to achieving the Millennium Development Goals (MDG) by 2015.

"The Philippines' declining tax effort is a major trouble in achieving the MDGs," he said in a forum on Thursday.

The MDGs, an international agreement which spans from 2004 to 2015, are aimed at assessing social problems and promoting growth in basic sectors. The goals touch on areas of hunger, education, gender equality, and health care, among others.

On the other hand, tax effort refers to the ratio of tax collections to gross domestic product (GDP). If government efforts to raise revenues for infrastructure and social services are not working, all the more will it be unable to finance initiatives to achieve the MDGs.

The country's tax effort has been slipping since 2006 at 14.3% of GDP. It has now reached 13.5% of GDP for the first half of the year, and is expected to hit as low as 11% due to the impact of twin storms "Ondoy" and "Pepeng".(international code names Ketsana and Parma, respectively).

Across the region, the Philippines also lags in terms of tax effort. The country has only managed to outperform Indonesia, which had a tax effort of 13.3% for the first half of the year.

Given this "worrisome" scenario, Yap called for medium-term policy responses such as fiscal reforms, social protection initiatives, and the revival of private investments. 

Specifically, he said fiscal incentives should only be given to sectors that really need them, and to improve tax administration by conducting random lifestyle checks.

"We should also improve coverage, funding, and targeting of social protection and social inclusion programs," he said.

Early this week, University of the Philippines economics professor and former budget secretary Benjamin Diokno warned that the next administration may face a fiscal crisis  due to dwindling revenues and legislated tax cuts. 

On top of this, he said the government has been spending extra to help pump-prime the economy and reconstruct various areas affected by the recent typhoons.

Diokno defined a fiscal crisis as the country's inability to raise enough revenues to cover its expenditures and debt payments. By Karen Flores, abs-cbnNEWS.com