Under Marcos, ‘costly’ Maharlika wins over crucial tax reforms
While other countries that accumulated a huge debt pile during the pandemic rushed to enact new reforms this year to raise revenues and quickly close their budget holes, the Philippines under the Marcos administration had a different priority in mind: creating a sovereign wealth fund (SWF).
It was a hard sell at first. When lawmakers allied with President Marcos floated the idea of establishing what is now known as the Maharlika Investment Fund (MIF), Filipino households were grappling with brutally high inflation while a tight fiscal space crimped government spending on much-needed programs and projects.Mr. Marcos nevertheless made MIF happen this year, touting the nation’s first ever SWF as “a bold step toward our country’s meaningful economic transformation” since the pandemic.
But whether such a move was an efficient use of political capital is another question.
As it is, credit rating agencies and multilateral lenders are urging governments around the world to enact bold tax reforms that would help fix their balance sheets saddled with pandemic debts—a no ordinary move that typically requires a lot of political will. In Southeast Asia, countries like Vietnam and Malaysia have recently tightened their taxation on foreign companies to raise revenues.But it was a different story for the Philippines this year. While the government identified four tax measures that it wants to be passed, Mr. Marcos threw all his political weight behind MIF despite the absence of surplus resources that are typically required when creating SWFs.
For Dr. Anthony Lawrence Borja, political science professor at De La Salle University in Manila, the impact of Mr. Marcos’ decision to prioritize MIF over tax reforms would depend on the gains that the country would get from the “costly” SWF.
“From the perspective of ordinary citizens, the creation of such a fund might appear as unnecessary or even a questionable waste given that there are more pertinent concerns that require government attention and funding,” Borja said.“The MIF’s impact on [Mr. Marcos’] political capital depends on whether it can produce enough tangible results that can fuel future propaganda that highlights success and dispels accusations of failure,” he added.
Priority tax measures
So far, the finance department wants Mr. Marcos to certify as urgent the following bills: Package 4 of the Comprehensive Tax Reform Program (CTRP), the Value Added Tax on Digital Service Providers, Excise Tax on Single-Use Plastic Bags, and Excise Tax on Sweetened Beverages and Junk Food.Based on the latest state projections, it is only in 2027 that the budget deficit, as a share of the economy, is forecast to return to prepandemic level at 3.2 percent, from this year’s projected ratio of 6.1 percent.The anticipated implementation of priority tax measures over the medium term would push up revenues to P6.622 trillion in 2028, economic managers said.
With a lot of the administration’s political capital spent on MIF, Dr. Leonardo Lanzona, economist at Ateneo De Manila University, said the President might have to do more work to convince the public to support his proposed tax reforms.“Regarding economic matters, the key issue here is one of trust. First question is whether these are the kinds of public goods or state programs that people need and want,” Lanzona said.
“Second is whether the people are willing to pay for these public goods in the form of taxes. These questions could have been answered had the political system during the presidential elections forced candidates to present the public goods they want to produce and the costs of producing them,” he added. INQ
