Government does not need to accelerate fiscal consolidation—AMRO – Manila Bulletin

The ASEAN+3 Macroeconomic Research Office (AMRO) said the Marcos administration needed to accelerate the pace of fiscal consolidation given the national government’s tight policy space to absorb future shocks.

In AMRO’s annual consultation report published on Wednesday July 20, the think tank raised concerns about the government’s reduced fiscal space, with its debt ratio set to peak at 64.6% next year. .

“Given concerns about shrinking fiscal policy space and limited buffers to deal with future shocks, the pace of fiscal consolidation should be accelerated once private sector growth becomes self-sustaining,” said AMRO in the report.

“Fiscal consolidation can be achieved by improving spending efficiency and improving revenue collection,” he added.

However, AMRO said fiscal consolidation should not undermine economic recovery, while improving the government’s fiscal sustainability.

Under the current government’s program, the Marcos administration plans to gradually reduce the budget deficit from 8.6% of gross domestic product (GDP) last year to 4.1% by 2025.

At the same time, the government plans to reduce its debt ratio to the level of 52% by the end of the Marcos administration.

“Gradually reducing the fiscal deficit is deemed reasonable as growth momentum would remain subdued in the near term and would therefore require continued strengthening,” AMRO said.

To improve the effectiveness of fiscal programs, AMRO said the government should only invest in “more economically viable infrastructure projects” that are selected through rigorous feasibility studies.

“Non-essential and inefficient budget programs should be revamped or eliminated through zero-based reviews, and resources redirected to national development priorities,” the think tank said.

On the revenue side, AMRO said the government should continue to strengthen revenue-enhancing measures, including broadening the tax base, especially for value-added tax (VAT).

To improve the efficiency of tax administration, AMRO said the government should introduce digitization of tax and customs collection.

Meanwhile, AMRO said the implementation of the Business Recovery and Business Tax Incentives Act will encourage more private sector investment, but it will also continue to limit government revenue. corporation tax over the next few years.

“Increasing excise duty rates and introducing new taxes on digital services could also be considered,” he added.

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