PRODUCTIVE spending by the national government appears to have picked up pace and should continue doing so to stave off calls for lower income taxes, a brokerage house said.
Philippine Equity Partners, Inc., which also does research for Bank of America Merrill Lynch, noted that proposals for tax cuts were becoming a campaign issue ahead of next year’s national elections.
The calls for lower taxes, focused on wages, gained support after the government recorded a surplus mid-way through 2015 against expectations of a full-year deficit-to-gross domestic product (GDP) target of 2 percent.
“Basically, some argue that if the government is not spending, they should reduce the tax burden,” PEP said in a research note.
Leaders of Congress have urged the Aquino government to support legislative proposals to lower income taxes but economic managers have said that this should come with potential revenue-raising measures.
In particular, Congress wants President Benigno Aquino 3rd to certify House Bill 4829, which would adjust income taxes to inflation, as urgent.
Under the measure, those earning P22,000 and below will be taxed 5 percent, with rates for other tax brackets being adjusted up to the top tier of those earning over P1.095 million, who will have to pay P273,750 plus an additional 32 percent of the excess over that amount.
The bill has been described as favorable to low and middle income wage earners, compared to the current 5 percent tax for those earning P10,000 or less and a 32-percent rate for those taking in P500,000 and above.
The Finance department, which has said that lowering income taxes for individuals would cut government revenues by as much as 1.5 percent of gross domestic product or P30 billion yearly, insists that it will only support the bill if Congress also amends bank secrecy laws to allow the government to go after tax evaders.
The tax cut issue, PEP said, could die down if the government accelerates spending, which it noted appears to be occurring.
“We reckon that if the government is able to pick up the pace of productive spending… calls for tax cuts may recede,” it said.
PEP noted that despite the modest pace of spending in the first half of 2015, up just 9 percent year-on-year, the third quarter saw this improve 19 percent from a year earlier.
“For the government, improved credit ratings have translated to lower borrowing costs. This has helped keep interest payments on government debt virtually flat from 2012 to 2014,” it added.
PEP noted that interest payments as a proportion of the budget were falling, implying that productive allocations—funds spent on consumption and investment—were growing.