This paper looks into the most crucial challenge confronting the Macapagal-Arroyo administration in relation to the mobilization of domestic resources. This is none other than the implementation of a coherent and practicable tax reform agenda whose goal is to increase the tax effort (measured as taxes as a proportion of gross domestic product) to a significant level and hence contribute to augmenting the country’s domestic savings. Furthermore, this paper gives more attention to identifying or proposing the reforms that can be advocated by civil society organizations. In this sense, the paper can serve as a basis for developing a civil society position on a progressive tax reform agenda. The paper is divided into two general sections, namely the reforms that can be done at the national level and taxation issues arising from globalization.
This paper attempts to develop a civil society policy agenda on domestic resource mobilization towards influencing the global Financing for Development (FfD) process initiated by the United Nations.
The preparations for the FfD include a series of United Nations meetings that will come out with analyses and recommendations on a broad range of financing and related issues. The process will culminate in an international conference in March 2001.
The FfD is an opportunity not only to address the global concerns and their impact on the Philippines but also to provide a boost to the national reform initiatives.
The FfD can thus be a means to speed up the tax reform agenda that the Macapagal-Arroyo administration has to put in place.
National Context
Public finance reforms have gained greater urgency especially in the wake of reversals during the Estrada administration. During the short term of Estrada for example, the national government incurred a serious deficit, arising from dismal revenue collection and excessive, unwise spending. This deficit is hounding the Macapagal-Arroyo administration in its effort to revive economic growth. The Department of Finance (DoF) estimates that the deficit in the national government balance (revenues less expenditures) in 2001 is equivalent to 4.0 of gross domestic product (GDP).
Nonetheless, domestic resource mobilization is a perennial issue, regardless of who is in power. Time and again, it has been pointed out that the Philippines is a "sick man of Asia," afflicted with low domestic savings, low tax effort, and low growth.
Two other factors make domestic resource mobilization crucial in the current period. The first relates to the impact and the lingering effects of the financial crisis that struck the country and the rest of the world in 1997. A major lesson drawn from the crisis is to depend less on foreign capital and correspondingly to increase domestic savings and investments. The second is the implication of the September 11 terrorist attack in the United States. That is, it has pushed the US into a recession and has shaken the global economy. For the Philippines, this means solidifying an economic strategy that focuses on stimulating and expanding the domestic market. Again, this would necessitate a greater effort in mobilizing domestic resources.
Focus of Paper
It goes without saying that domestic resource mobilization encompasses a wide range of issues and concerns. Even if we divide the concerns into the roles of the public and private sectors, the set of issues for both the private sector and the public sector is still large. Public policy that covers both private and public activities likewise has a broad scope. We can enumerate a long list of concerns: taxation, public expenditure, monetary policy, banking and finance, trade and industry, agriculture, health environment, social insurance and protection, market regulation, rule of law, etc. All this is closely linked to the mobilization of domestic resources.
Not to be overwhelmed, this paper narrows the subject to what it believes is the most crucial challenge confronting the Macapagal-Arroyo administration in relation to the mobilization of domestic resources. This is none other but the implementation of a coherent and practicable tax reform agenda whose goal is to increase the tax effort (measured as taxes as a proportion of gross domestic product) to a significant level and hence contribute to augmenting the country’s domestic savings.
Furthermore, this paper gives more attention to identifying or proposing the reforms that can be advocated by civil society organizations. In this sense, the paper can serve as a basis for developing a civil society position on a progressive tax reform agenda. The proposed reform measures are written in summary form for the sake of simplicity and brevity.
The paper is divided into two general sections, namely the reforms that can be done at the national level, which can be pursued with or without the FfD. Of course, a favorable enabling international environment for internal reforms is most welcome. It thus matters that the second section deals with taxation issues arising from globalization. And the issues here are precisely the issues that the FfD must tackle.
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