State think tank backs targeted financial aid
A government think tank backed targeted assistance to Filipinos amid rising oil prices instead of removing or suspending value-added tax (VAT) because of its impact on government finances.
The Philippine Institute for Development Studies (PIDS) said in its latest discussion paper that a targeted, consumption-focused and time-bound fiscal strategy, which it described as “countercyclical,” would help more than a “cyclical” fiscal policy.
A countercyclical fiscal policy is one where the government increases spending or provides relief during economic downturns to support demand, as opposed to a procyclical approach, where fiscal actions reinforce the cycle by tightening during slowdowns or expanding during booms.
Prudent and adaptive
“Our findings suggest that the effectiveness of countercyclical fiscal policy in supporting sustained macroeconomic growth depends on prudent and adaptive policy design,” PIDS said.
“This includes preserving fiscal space and credibility, strengthening automatic stabilizers and ensuring that fiscal interventions are well-targeted and responsive to the nature and timing of external shocks,” it added.
The study comes as the country reels from the impact of the energy crisis triggered by the Middle East war, which has pushed inflation to 7.2 percent in April and slowed economic growth to 2.8 percent in the first quarter.
“The outright removal of VAT or excise taxes on fuel is not advisable, as such measures are fiscally costly, weakly targeted and difficult to reverse once implemented,” it added.
The Unified Package for Livelihoods, Industry, Food, and Transport is currently the government’s main response as the Philippines grapples with a state of energy emergency, with targeted measures such as fuel and transport subsidies already in place.
PIDS warned that blanket suspensions of fuel taxes could amplify economic downturns by undermining fiscal sustainability and distorting long-term price signals.
