February 1st, 2022
Rep. Joey Sarte Salceda Chairman, House Committee on Ways and Means
Our debt levels are still manageable, but we need to emphasize three key points.
First, we should be investing more in long-term, growth-creating programs than our debt payments. Doing so means we are putting more money in things that will help us pay debt in the future. Thus, our infrastructure and long-term investments should be bigger than debt payment. Capital outlays for FY 2022 is 1.019 trillion, or 20.3% of the national budget, or around 5.6% of GDP.
Debt service will be 5.9% of GDP, on the other hand. On that front, we clearly need to bring our long-term investments back to a healthy level versus our debt. I am reassured by the statements of all major presidential candidates who want to keep the Build, Build, Build program.
Second, we should do our best to keep interest payments low. The current Treasurer of the Philippines has been very successful at keeping the average interest rate on government debt very low – with or without crisis. One thing to watch is the appointment of the next National Treasurer by the next President.
Third, we need to keep an eye on the schedule of debt payments. The first big bond redemptions we are making is in 2024 and 2025, with around P60 billion at each round. Mind you, we have a big personal income tax cut coming in 2023, at around 5% of the average worker’s income. Of course, we also have to make sure that we still have enough funds for both debt payments and adequate social services. The next President will almost certainly have to both raise new taxes and improve tax administration, with one round of tax reforms within the President’s first year in office.
The rich have gotten richer during the pandemic, and this is common experience. A study on the effects of five pandemics between 2003 and 2016 finds that on average, income inequality in affected countries increased over the five years following each event, with the effect being higher when the crisis led to contraction in economic activity, like COVID-19. So, our next round of tax increases will have to fall on the wealthy.
I think we are still on strong footing, but the margin for error grows less when you have the kind of fiscal space we have. That is why the Committee on Ways and Means does all it can to improve both tax policy and tax administration. We have changed about as much in tax laws as we did in tax administration. All in all, President Duterte’s administration is poised to become the best tax collector as a share of GDP since Ramos. If our tax policymakers in the next government can sustain the kind of tenacity and decisiveness with which our committee did tax reform, we should be in a much better position to deal with our debt. #