Carlo's Think Pieces

Reflections of a Filipino in the Netherlands

No New Taxes?

Posted by butalidnl on 22 January 2010

Noynoy Aquino promised, during a speech before the Makati Business Club on 21 January 2010 that he will not raise taxes as president.  This is a nice promise, but unfortunately, I don’t think that Aquino, nor any president for that matter, could possibly keep such a promise.

Congress
In the first place, it is Congress that decides to raise taxes, and not the president or the executive branch. When the Congress deliberates on the budget, they also deal with taxes (usually small ones); the budget is such a complicated and involved bill that when they agree on it, it is the result of such a long process of deliberation and compromises. When the budget comes to the president for signing, and it  has a few tax increases, it will be extremely difficult not to sign. Not signing may mean that the budget has to be deliberated on again, and that the first few months of the following year would be without a new budget, etc. Thus, the president may really have to sign such a budget.

Adjustments
Then, there are the adjustments made to taxes on a regular basis. For example, some excise taxes are regularly adjusted to go with inflation. Thus, an excise tax on say alcohol, will have to be updated if the price of alcoholic beverages rise. Or, in the course of negotiations with other countries, it may be necessary to change some taxes from excise to ad valorem (excise is a specific amount in pesos per unit to be taxed, will an ad valorem tax is based on the price of the unit to be taxed) or vice-versa, or to raise some taxes and lower others. When this happens, the overall tax burden may remain the same, but specific individuals may experience an increase in their taxes, while others experience a decrease.

Also, if the national government decides to cut down on subsidies for some services at the local level, this may push the LGUs to raise some of their own taxes to recoup the added expense. In a sense, the national government raised local taxes.

Overall impact
Of course, if the “no new taxes” promise is taken to mean: “I will not increase the overall tax burden.” this become more feasible. This means that increases in some taxes will be offset by decreases in others, so that the overall effect will be the zero. This means that the government will seek other ways to generate money – e.g. through more economic growth – than taxing the people.

The idea behind Aquino’s no-new-taxes policy is that enough money could be raised through efficiency in government and tax-collection. And though this is a good idea; it’s just not an absolute thing. I don’t believe it is a good idea to tie down the president to a “no new taxes” policy, since taxes are inevitably part of the arsenal of instruments open to the president.   If good government requires that some taxes go up, then so be it. Just make sure that it is done fairly and that it really is the last resort.

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