Australia prods RP to heed IMF-WB proposed tax measures

CLARK FREEPORT, Pampanga – Australia has urged the Philippines to consider new “tax raising measures” proposed by the International Monetary Fund and World Bank.

In a four-page statement, the Australian government said a cornerstone of these reforms is tax administration and the raising of tax revenue collection.

“Too much economic activity takes place outside the formal economy, and this must be harmonized,” read the statement distributed during the two-day 2008 Philippine Development Forum that ended at Clark Freeport last Thursday.

Australia lamented the “high poverty rates, unusually” in the Philippines.

“Clearly, taxation reform will be a key determinant of the Philippines’ ability to sustain and increase critical spending in the social sectors and in vital areas such as agriculture and infrastructure,” read the statement.

“The proportion of the population living on less than $1 per day is 13.2 percent – 12 million people or about the entire population of Manila – higher than both Vietnam (8.4 percent) and Indonesia (7.7 percent), and this masks significant regional disparities in the Philippines where the proportion of poor is markedly worse.”

Australia said coordination among the Department of Finance, Department of Budget and Management, and the National Economic and Development Authority will significantly enhance a “strategic approach” to budget formulation and avoid overlapping agendas.

“Budget execution and transparency is also a priority need,” read the statement.

“Evidence suggests that a number of government agencies are having difficulty spending their increased budgets. Strongly supported by Australia, as well as other donors, efforts are ongoing to assist the government to reform expenditure management practices towards more systematic budget execution and transparent social sector spending.”

Australia said the recent 14 percent growth of gross domestic product is “far too low ” to move the Philippines to a “higher sustainable” growth path.

“The Philippines ranks badly in international competitiveness rankings,” read the statement, noting that the Philippines ranked  109th out of 122 countries surveyed.

Australia said the Philippines must “tackle vigorously” challenges in the areas of political instability, weak institutions, influence of vested interests and corruption.

Factors like labor productivity, rising poverty and poor business environment “undermine investment potential” in the Philippines, the statement added.

Australia said while the Philippines should be “applauded for its recent allocations to the social sectors,” such allocations should be “increased and maintained,” particularly in the areas of creating employment, education and health, infrastructure and agriculture.

“The Philippines must vigorously pursue institutional reforms in the Bureau of Internal Revenue and the Bureau of Customs so tax evasion and smuggling can be more effectively tackled,” read the statement.

Australia also touched on the state of education in the Philippines.

“While Australia warmly welcomes the recent budget increases in education, we note the worrying signals that could lead to a serious decline in perhaps the most important of the assets of the Philippines – its well educated people,” it said.

“Net enrollment rates are declining, school dropout rates and academic achievement standards are on the downward slide. These negative trends are largest in the poorest regions of the Philippines, particularly Mindanao (ARMM, Caraga and Western Mindanao).”

Australia said the Department of Education needs to be “re-engineered and modernized” despite implementation of the Education Reform Agenda, which the statement described as “an area in which Australia is playing a very significant supportive role.”

“The Philippines needs enough trained teachers with appropriate qualifications and deployed in places with the greatest need, as well as amendments to laws relating to the so-called Magna Carta for teachers,” read the statement.

Australia said successive decades of poor and “misallocated investments” have left the Philippines with a “decrepit infrastructure base.”

“Australia asks that the government demonstrate to the market that reforms and clean procurement practices are possible and Public Private Partnerships (PPP) are genuine investment and partnering opportunities,” it said.

Australia vowed to “fully assist” the Department of Public Works and Highways in this endeavor.

“Australia will also devote considerable effort to improving Philippine road network,” read the statement.

“The road network accounts for 50 percent of the country’s freight as well as providing the most common means of transporting passengers and economic goods within the islands as well as between them.”

Australia said the mining industry in the Philippines has the potential to promote regional development through infrastructures, jobs, and revenue for local communities.

“Yet in the Philippines, investor uncertainty, security concerns, and slow and unpredictable governance arrangements are impeding the development of a potentially crucial industry,” the statement read.

Australia has vowed to help the Philippines work towards “economic reforms and measures.”

“The Australia-Philippines Development Assistance Strategy 2007-11 underpinned by approximately $100 million in annual grants has, as its core, enhancing economic growth, boosting basic education efforts and supporting national stability and human security,” it said.