New taxes key to meeting MDGs, say economists

MANILA, Philippines—Keeping tax financing out of its economic-management strategy could cost the government its commitments on education, maternal and reproductive health, and poverty reduction, according to economists.

In the Philippine Institute for Development Studies policy note titled “New taxes needed to achieve the Millenium Development Goals (MDG),” contributing economists expressed doubt whether fiscal reforms alone would take effect fast enough to generate the revenues necessary to achieve the MDGs.

Economists noted that with barely three years left until the 2015 deadline to meet the MDGs, to which the Philippines committed itself, the goals for education, maternal and reproductive health, and poverty reduction remained “elusive.”

“One obvious approach to meeting these challenges would be to increase public spending on programs for improving MDG outcomes,” economists said.

However, the current administration has said that improvements in revenue effort shall be accomplished solely by improvements in tax administration.

This, economists said, would limit the fiscal space for government programs. Another constraint is the large debt-to-GDP [gross domestic product, a measure of economic performance] ratio, which imposes stringent fiscal constraints to maintain a sustainable path for public deficit.

Economists doubted whether reforms could take effect fast enough to generate the revenues necessary to achieve the MDGs.

The challenge, it seems, is to identify new tax measures that would raise the required revenues rapidly but with the least distortion.

Among the forms of taxes mentioned are sin taxes, harmonized fiscal incentives, increase in road user charge and excise tax on petroleum products.

In conclusion, economists said tax financing would be feasible in the sense that the required revenue effort had been achieved before.

“Admittedly, it would entail a dramatic improvement in revenue effort, compared to most recent trends over the past decade. This underscores the urgent, developmental rationale for raising collection efficiency, reforms in the existing tax structure, in tandem with improvements in service delivery,” they said.