Philippines president: We are not relaxing on fiscal reforms

Jun. 14, 2007

MANILA — President Gloria Macapagal Arroyo wants to assure investors, creditors, and credit watchers that the Philippines is not going to backslide in its bid to shore up finances, saying the government can balance the budget and fund an ambitious infrastructure program even without new taxes.

The Chief Executive issued the statement as international ratings agencies and multilateral institutions recently warned the government against being complacent with respect to fiscal reforms.

Mrs. Arroyo acknowledged that revenue agencies performed poorly in the first quarter and contributed to a wider deficit, but promised improvements in the way taxes are collected and hinted of revamp at the Bureau of Internal Revenue.

She said that credit rating agencies should not ignore the fact that the Philippines has experienced 26 quarters of growth and has been rewarded by the financial markets.

“We are not relaxing on fiscal reforms. In fact what we were able to do in 2006 was a reflection of the progress we made over the past two years on putting our fiscal house in order,” she claimed in an interview in Malacaang.

Mrs. Arroyo said she would work to make sure the revenue stream wont run out by imposing “structural reforms” and looking for other sources such as the accelerated privatization of state assets, among them shares in blue chips like San Miguel Corp. and Manila Electric Co.

The World Bank has warned the Philippines against complacency amid the peso and stock market rise, saying the government should work to attract more permanent investments. Rating firms Standard & Poors and Moodys have decided against an upgrade, noting the poor tax take.

But the President pointed to other “indicators of confidence,” such as a Japan Credit Rating Agency upgrade.

After expanding the scope of the value-added tax and raising the rate to 12% from 10%, and the earlier passage of higher taxes on tobacco and alcohol, there will be no new taxes. Malacaang will still push for a bill streamlining tax incentives, which stalled in the 13th Congress.

“Frankly I think the tax revenues we have now are sufficient. The biggest reform we have to make now is in the structural reforms. In the meantime, while were doing the structural reforms, were also accelerating privatization so that during the gap when the structural reforms are not bearing fruit yet the revenue stream continues through the privatization,” she said.

Addressing concerns over a tax amnesty bill, which the Palace has allowed to lapse into law, the President declared that tax evaders charged in court wont be allowed to get away.

“There were provisions that we were uncomfortable with which is why I did not sign it. On the other hand, I believe that having an imperfect law at this time is better than having a perfect law that might not come because there are a lot of potential tax collections that can be made.”

Mrs. Arroyo vowed to work with an opposition-dominated Congress, admitting there were “contentious issues” raised during the election campaign “but its over. Lets move forward because we have a country to serve.”

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