Public borrowing

public borrowing

1. Public Borrowing

2. Public Borrowing is money the government borrows to fund public spending, the total amount of money that a country's central government has borrowed to fund its spending on public services and benefits. In the modern state perspective, the needs constantly increase; therefore, the state has to spend more to meet these needs. Public expenditures are generally met by ordinary public revenues such as taxes, duties, fees, parafiscal revenues, property and enterprise revenues, taxes, and penalties. However, the state is faced with the public sector deficit due to reasons such as large infrastructure investments, war, development financing, natural disasters, economic crises, budget deficits, as well as the ever-increasing ordinary public expenditures. To overcome this situation, they refer to borrowing.

3. Public Debt the total of the nation's debts: debts of local, state, and national governments; an indicator of how much public spending is financed by borrowing instead of taxation.

4. Classification of Public Debts

5. Public debts according to maturities Short-term public debts (floating debts) refer to debts up to 1 year. In short-term borrowing, treasury bills and treasury guaranteed bond are used. Medium-term public debts refer to debts ranging from 1 to 5 years. Long-term public debts refer to debts more than 5 years. The instrument of long-term borrowing is the government bond. These debts are provided from the capital markets and have a higher interest rate than the interest rate of short-term borrowing. Long-term debts are classified as redeemable debts and irredeemable debts.

6. Public debts according to sources Domestic/ Internal borrowing refers to a country’s borrowing from its own national resources. This borrowing has no effect on increasing or decreasing national income. Examples: BSP loans,treasury securities Foreign/ External borrowing refers to the resources provided from a foreign country that is repaid with principal and interest at the end of a certain period. External debt has an increasing effect on national income when it is taken and vice versa has a decreasing effect on national income when it is paid. Examples: IMF loans, WB loans.

7. As of November 2020, the general government debt of the Philippines amounts to ₱10.13 trillion ($210,709,166,300). The debt-to-GDP ratio, which reflects the ability to pay obligations, will jump from 39.6 percent in 2019 to 53.9 percent in 2020 and 58.1 percent in 2021. Domestic debt : ₱7.19 trillion ($149,555,666,900) (November 2020 External debt : ₱2.94 trillion ($61,153,499,400) (November 2020) Total debt: ₱10.13 trillion ($210,709,166,300) (November 2020)

8. Public debts as a voluntary basis Voluntary debts refer to the debts that are lent to the state by its own will and desire. Obligatory debts refer to the debts which are lent by forcing to take the bonds issued by the government. These debts are applied in times of war, natural disaster, or economic crises. In itself, it is classified as the debts taken by full compulsion, the debts taken by the threat of forcing, the debts taken by creating the necessary savings, and the liabilities taken by the moral coercion .

9. Public debts according to category Direct - made directly from lender to borrower, rather than a third party (National and Local)  Guaranteed- promise by a one party to assume the debt obligation of a borrower Non-guaranteed - not guaranteed for repayment by a public entity because it is payable solely from pledged specific for earnings of revenue (utilities, sewage disposal plants, toll bridges, etc.)

10. Productive Debts If the debts are used in construction, such as railways, power stations, and irrigation projects, which contribute to the productive capacity of the economy. By this way, productive debts provide a constant flow of income to the state. The state generally pays the interest and principal debt amount from these projects’ revenues. Unproductive Debts  If the debts are used in the area such as war, famine relief, social services, etc., which do not contribute to the productive capacity of the economy. denote. The state generally pays the interest and principal debt amount from taxes; therefore, these debts are a burden on the society.

11. Origin of Public borrowings

12. Ancient and medieval times Governments required funding, as do modern states, but they didn’t borrow “publically” in the sense of drawing funds from a wide populace and making it ultimately responsible for servicing the debt (paying principal and interest), as a form of deferred taxes. P ublic borrowing became common, but initially involved loans in kind (commodities) instead of in money, for shorter rather than longer periods, and for war or idiosyncratic purposes rather than as a permanent funding source . no debt instruments existed in the forms so familiar to us today – namely, tangible securities traded in secondary, liquid markets with prices and yields visible on public exchanges. This form of sovereign obligation emerged in the late seventeenth century, when the rule of law, sanctity of contract, and parliamentary checks on monarchical power took hold, after Britain’s Glorious Revolution in 1688

13. Classical Theory (Mercantalist Period) European economists between 1500 and 1750 are considered mercantilists. Era of merchant capital, dependent on connections between social and productive systems. Theory that believes in the essence of “ Laissez-fair policy Theory that has a pessimistic point of view.Its supporters believe that government borrowing is invariably wasteful, ruinous to prosperity, and even morally unjust Mercantalism is an economic practice by which governments used their economies to augment state power at the expense of other countries. Adam smith One of the greatest critics of mercantilism. He was strong in emphasizing the disadvantages of borrowing and expostulate on the advantages of the balanced budget during the years of capitalism.

14. Neo-Classical Theory Extension of Classical Theory (later part of 19th century)  Formed by A.C. Pigou through his book “Economics is Welfare”  This theory believes that the economic system functions in response to the instructions of the market the ultimately the consumer . Originally published in 1920. Alfred C.Pigou reconceptualized economics as a science of economic welfare in the course of which he developed the first systematic theory of market failures.

15. Keynesian Theory ( Modern Theory) It was during the time of John Maynard Keynes that the idea of public borrowing was introduces during the Great Depression mainly as a compensatory tool in times of economic stability. States that the increase in public debt through the multiple effects would raise the National Income. Borrowing for capital generation purposes is necessary like setting up public enterprises which will contribute to a productive output. John Maynard had proposed public borrowing as a war financing to England It is based on the assumption of fully developed economies undergoing cyclical difficulties. In LDC ’ s productive capacity is not yet fully developed John Maynard Keynes “In order to keep people fully employed,governments have to run deficits when the economy is slowing”

16. A fter the World War II, public borrowing indicated both significant increase and structural changes due to on the one hand the repair works of the countries affected by the war, on the other hand, the financing needs of developing countries In the following period, the borrowing process are no longer interstate and have started to gain a new dimension by establishing international organizations such as International Monetary Fund (IMF), World Bank (WB), International Finance Corporation (IFC), International Development Association (IDA), European Investment Bank (EIB), and Islamic Development Bank (IDB).

17. Development Finance The expenditure demands of development are expensive and urgent. The only immediate option recommended by experts is borrowing, specifically foreign borrowing. Musgrave and Musgrave point out that in development finance, foreign borrowing is preferable. “Public investment which is financed by (local) borrowing does not add to capital formation if it merely diverts funds otherwise available for private investment. If borrowing is from abroad, additional resources become available as borrowing is accompanied by increased imports.”

18. Importance of FOREIGN BORROWING I t may results in inflow of additional resources covers up foreign exchange deficiencies due to development spending facilitates the inflow of technical and managerial expertise

19. International Monetary Fund An international organization of 184 member countries.  It was established to promote international monetary cooperation, exchange,stability, and orderly exchange arrangements; to foster economic growth and high levels of employment; and to temporary financial assistance to countries to help ease balance of payments adjustment .

20. The World Bank Originated from IBRD- International Bank Reconstruction and Development. The goal of this was to assist in the recovery and reconstruction of countries devastated by WWll. By 1959 the bank shifted from reconstruction to development lending with focus on LDC’s. During the 1950’s loans to LDC’s were infrastructure related. Later on it widened its scope to include mining, agriculture,water, education,etc. By the end of the 90’s , total loans and credits to LDC’s amounted to $2 trillion .

21. The World Bank (WB or the Bank) has been a partner of the Philippines for 75 years, providing support to the Philippines’ development programs and projects . Since 1945, the World Bank Group has mobilized funding, global knowledge, and partnerships to support the Philippines’ efforts to alleviate poverty, upgrade infrastructure, improve health, nutrition, and education, strengthen resilience against climate change and natural disasters, promote peace, and enhance global competitiveness. The first World Bank-supported project in the Philippines was the Binga Power Project in 1957 which funded the construction of a hydroelectric power station in Benguet to meet the growing demand for electricity in Luzon following the Second World War.  Other projects: renewable energy projects (such Angat Power Project in Bulacan Province and Maria Cristina Falls Hydro Power Expansion Project in Iligan City, Lanao del Sur), irrigation (Upper Pampanga River Irrigation Project, including Pantabangan Dam), and water supply (Manila Water Supply Project). Most of these projects are still operational until today .

22. F rom 1968 to 1981 , WB president Robert McNamara focused the Bank’s attention on poverty and the sources of underdevelopment. Under his leadership, the Bank significantly expanded lending in sectors such as agriculture and urban poverty as well as social sectors like education and health. In the ‘70s, the WBG supported 53 projects, mostly in agriculture, fisheries and forestry; irrigation and drainage; transport (mainly roads and ports); and water supply and sanitation. One of them was the Magat River Multipurpose Project. In the 1980s, they funded the Angat Water Supply Project to meet the expected water demand in the Metropolitan Waterworks and Sewerage System (MWSS) service area until the year 2000. The Bank also funded the Bacon Manito Geothermal Development Project, one of the major sources of renewable energy in the Philippines, operating several power plants with a combined capacity of about 150 MW of electricity for the country’s needs. In the ‘90s, the Bank’s assistance focused energy, financial sector development, public administration, agriculture and education. ( Leyte-Cebu Geothermal Project, Leyte-Luzon Geothermal Project) the Bank funded the Szopad Social Fund Project in 1998 to increase the access of the population in the poor and most conflict-affected areas of the Special Zone for Peace and Development (SZOPAD) to basic economic and social infrastructure, services, and employment opportunities, through speedy financing of subprojects for local development initiatives. This project marked the start of the Bank’s engagement in peace and development in the country, leading to the establishment of the ARMM Social Fund Project in 2002, Mindanao Trust Fund in 2005, and the Bangsamoro Normalization Trust Fund in 2021.

23. Subic Bay Freeport Project . The development goals of the project were to: a) improve existing infrastructure; b) improve access to the area for industrial, commercial and passenger traffic; c) maintain the SBF asset base, including protection of the environment; and d) strengthen the capacity of the Subic Bay Metropolitan Authority (SBMA) to manage and administer the facility. 2000’s, World Bank support expanded for social protection, community-driven development, peace-building in Mindanao, education, rural development (including agrarian reform), and water supply and sanitation. World Bank support expanded for social protection, community-driven development, peace-building in Mindanao, education, rural development (including agrarian reform), and water supply and sanitation. Through the Mindanao Trust Fund, the Bank in collaboration with other development partners supported community projects to aid recovery in conflict-affected areas in Mindanao. The Social Welfare and Development Project which supported the country Pantawid Pamilyang Pilipino Program or 4Ps rapidly expanded until the present. The country has built on the 4Ps to respond better to natural disasters and other shocks. In response to Super Typhoon Yolanda (international name Haiyan) in 2013, the DSWD provided additional subsidies to 4Ps beneficiaries to mitigate the impact of the calamity. Similarly, during the COVID-19 pandemic, the government was able to quickly deliver social assistance to 4Ps beneficiaries who are among the poorest and most vulnerable in Philippine society.

24. The Philippines in the early 80’s was one of the top seven debtor countries and had a Balance of Payment (BOP) deficit of $ 1.135 billion, a trade deficit of $2.805 billion and a cash deficit of P 14.4 billion. Negotiations with IMF were formidable , such as reduction of cash deficit to P9 billion, further restructuring of tariff rates and further devaluation of the peso.  “ the World Bank has used its financial power to promote the interests of private, international capital in its expansion to every underdeveloped world”

25. The Philippines was the World Bank’s top borrower in fiscal year 2021 as the country needed more money for its fight against COVID-19 and efforts to narrow down the biggest pandemic-induced output gap in the region. The World Bank’s annual report for fiscal year 2021 (July 1,2020 to June 30,2021) showed that the commitments of its lending arm, the International Bank for Reconstruction and Development  (IBRD), to the Philippines during the period was the highest among all country-borrowers at $3.07 billion across eight operations or loans extended by Washington-based lender. This was nearly double the $1.87billion in 2020 . 

26. As such, the Philippines surpassed India which was the biggest borrower in fiscal year 2020. India’s borrowing in 2021 was $2.65 billion, down from $4.58 billion in 2020. IBRD’s other large country-borrowers : Indonesia ($2.2 billion), Morocco ($1.8 billion), Mexico ($1.73 billion), Turkey ($1.5 billion), Colombia ($1.35 billion), Brazil ($1.33 billion), Argentina ($1.24 billion) and China ($1.23 billion). I n its 2021 annual report, the World Bank noted that the Philippines had the biggest output gap of 8.4 percent in the East Asia and Pacific region in 2020. The output gap reflected the difference between prepandemic economic potential against actual performance amid the pandemic. Besides health-care and vaccine financing, the World Bank said it had also extended loans for the Philippines’ conditional cash transfers, customs modernization, disaster resilience and recovery, peace-building in the Bangsamoro Autonomous Region in Muslim Mindanao and various agriculture projects. The World Bank’s near-term lending pipeline for the Philippines included 11 upcoming project loans totaling $2.54 billion, some of which will be up for board approval before the end of this year while most are scheduled for 2022.

27. Global finance structure: impact on the philippine external debt

28. A government or a company will want to borrow from an overseas lender for a variety of reasons. One reason is  that local debt markets may not be capable of  meeting their financing needs, especially in developing countries. Additionally, foreign lenders may simply offer more favorable terms. For countries with low income, in particular, borrowing from foreign institutions is a necessary choice since it will provide financing that it would otherwise not be able to obtain at competitive rates and flexible periods of repayment. Excessive amounts of foreign debt will hinder countries’ capacity to invest in their financial prospects, whether through education, infrastructure, or health care, because their small income is spent on repayment of loans. It is a challenge to economic development in the long term. External borrowing is not a negative issue for a country until it can generate higher returns than the cost of borrowing, but it becomes vicious if it is not used properly and prudently. External borrowing would be enhancing capacity and output growth hence, making the debt productive and justifiable. On the contrary, this debt can create fiscal imbalances and excessive foreign borrowing that may make the country more vulnerable to different shocks and crises. It reduces the effectiveness of fiscal policies and limits the ability of the monetary authority to raise interest rates for monetary policy purposes, due to its effect on the budget deficit and debt .

29. Impact to Economy Growth: External indebtedness poses important challenges for developing countries, particularly in a context of floating exchange rate systems, open capital accounts and fast integration into international financial markets. Economists have long noted several macroeconomic channels through which debt can adversely impact medium- and long-run economic growth. High public debt can negatively affect capital stock accumulation and economic growth via heightened long-term interest rates, higher distortionary tax rates, inflation, and a general constraint on countercyclical fiscal policies, which may lead to increased volatility and lower growth rates.  Ineffective debt management, coupled with shocks such as a fall in oil prices or an extreme economic recession, may also cause a debt crisis. This is also compounded by the fact that foreign debt is generally denominated in the currency of the nation of the issuer, not that of the borrower. This means that if the economy of the borrowing country weakens, it becomes even harder to pay off such debts.

30. The Philippines was hit more severely by external shocks than most debtor countries. Yet at the same time, the debt crisis that occurred in the Philippines was not simply a result of the second oil price shock and the rise in world real interest rates. The Philippines had developed a borrowing momentum that could not be sustained, and the country would have eventually come to an external crisis even if the shocks of the 1980s had not been there to hurry the process along. two fundamental economic difficulties : * Philippines failed to develop self-sustaining growth that would have eased the burden of servicing its external debt. *The country failed to shift resources towards the traded goods sector, as was required both by its increasing debt burden and by its declining terms of trade .

31. Public Debt and Macroeconomy Economists’ views are divided on the impact of public debts on the macroeconomy. Proponents of the Ricardian equivalence argues that increased government borrowing may have no impact on consumer spending because consumers, by being rational, will expect tax cuts or higher spending that will lead to future tax increases to pay back the resulting increase in debts . The Ricardian equivalence pos it s that consumers will be indifferent to a tax cut as this will be temporary and will be offset by higher taxes to counter the increased expenditure requirements resulting from T-bills maturing in one year.However, there are arguments against the Ricardian equivalence as follows:

32. Consumers may not be as rational as initially thought. Some consumers may not anticipate that tax cuts will lead to tax hikes in the future. Thus, tax rebates are usually included in fiscal stimulus packages during an economic downturn. Tax cuts can boost growth and diminish borrowing requirements. Tax revenues fall in periods of slower economic growth, while government spending may increase through providing heightened social services such as higher spending on unemployment benefits. Some argue that decreasing taxes in periods of soft economic activity could encourage spending and heighten economic activity, which could improve the fiscal position and reduce the need for future borrowings to offset the tax cuts. Public debts could pump-prime the economy without crowding-out the private sector. During periods of weaker economic activity and uncertain conditions, the private sector may choose to remain in the sidelines . The government’s task, therefore, is to stimulate aggregate demand by spurring economic activity. 4. Pump priming activity could generate multiplier effect. The increase in output associated with pump-priming activity of the government could be higher relative to government spending.

33. Public Debt Sustainability Public borrowings – like any other debt – carry costs, particularly the interest expense of the funds borrowed. The debt servicing burden – i.e., principal plus interest, which are spread throughout the life of the debt – could comprise a significant chunk of the annual government budget. Debt management should, therefore, ensure that public debt programs are not bunched-up (by spreading the maturity profile to avoid illiquidity) nor excessive (by possibly setting a debt ceiling to avoid insolvency). When countries are unable to service their debt obligations, a credit event or default occurs. Countries rarely default on domestic currency debt since they have the option of printing more money. Countries facing a liquidity shortage may need assistance from multilateral institutions to counter the temporary liquidity squeeze. Meanwhile, highly indebted countries may need to implement strong, credible, and arguably unpopular fiscal consolidation.Multilateral institutions, such as the IMF, as well as credit rating agencies and private sector institutions, do regard the fiscal sector, in general, and public debt conditions, in particular, as important indicators in gauging the country’s economic and political situation

34. Debt sustainability is a major issue, particularly for countries facing higher public debts, such as what most advanced economies are currently experiencing.These countries are vulnerable to rollover risks as maturing debt obligations could become more expensive to refinance considering that investors will demand significant premium to compensate for the greater risks that they will be assuming. The punitive action of the market through higher borrowing costs will make it more difficult for these countries to service their obligations, creating a vicious cycle of debt trap. This could be aggravated when governments planning to undertake unpopular measures that will increase revenues and/or reduce public expenditures face political backlbacklash that render them not politically feasible. For advanced economies where monetary authorities embarked on massive bond buying programs to help prop up the domestic economy, the management of sovereign debts could affect monetary and financial stability. They could also undermine a central bank’s credibility as large-scale buying activities of government bonds could be perceived as providing support for the government’s financing needs, which could give rise to the risk of perceived threat to its independence.

35. Current issues and concern

36. Consequences of a Growing National debt

37. Lower National Savings and Income Large sustained national deficits cause decreased investment and higher interest rates. With the government borrowing more, a higher percentage of the savings available for investment would go towards government securities. This, in turn, would decrease the amount invested in private ventures such as factories and computers, making the workforce less productive. This would have a negative effect on wages.Because wages are determined mainly by workers' productivity, the reduction in investment would reduce wages as well, lessening people's incentive to work. Interest Payments Creating Pressure on Other Spending As interest rates return to more typical levels from historically low levels and the debt grows, interest payments will increase rapidly. As interest takes up more of the budget, we will have less available to spend on programs. If the government wants to maintain the same level of benefits and services without running large deficits, more revenue will be required.

38. Decreased Ability to Respond to Problems Governments often borrow to address unexpec ted events, like wars, financial crises, and natural disasters. This is relatively easy to do when the public debt is small. However, with a large and growing public debt, government has fewer options available. For example, during the financial crisis several years ago, when the debt was just 40 percent of GDP, the government was able to respond by increasing spending and cutting taxes in order to stimulate the economy. However, as a result, the national debt increased to almost double its share of GDP.If the national debt stayed at its current percentage of GDP or increased further, the government would find it more difficult to undertake similar policies [another stimulus] under similar conditions in the future. As a result, future recessions and financial crises could have larger negative effects on the economy and on people’s well being. Greater Risk of a Fiscal Crisis If the debt continues to climb, at some point investors will lose confidence in the government's ability to pay back borrowed funds. Investors would demand higher interest rates on the debt, and at some point rates could rise sharply and suddenly, creating broader economic consequences.That increase in interest rates would reduce the market value of outstanding government bonds, causing losses for investors and perhaps precipitating a broader financial crisis by creating losses for mutual funds, pension funds, insurance companies, banks, and other holders of government debt - losses that might be large enough to cause some financial institutions to fail.

39. The recent rise of public debt on 2021 is driven not so much by external or foreign loans (on which media unfortunately tends to fixate) but by domestic loans. This chiefly consists of the government’s issuance of debt securities (think Treasury bonds and bills) in the domestic credit markets. A vast majority or 93% of domestic debt consists of debt securities, and the remaining 7% mainly consists of loans extended by the Bangko Sentral ng Pilipinas (BSP) to the Treasury. It may not seem obvious, but many Filipinos nowadays have excess funds they’re willing to lend to government. And the BSP can, with a few keyboard strokes, draw up hundreds of billions of pesos to support the Treasury. Meanwhile, external debt only constitutes 29% of the total debt. Nearly half of it (44%) consists of foreign loans, including those from multilateral agencies like the World Bank or the Asian Development Bank. The majority (56%) consists of securities issued abroad.

40. Where is the money going? the Duterte government allocated too much money on infrastructure projects under Build, Build, Build, and not nearly enough on the pandemic response. The vaccines, too, received too little allocations. They were only given assured funding of P2.5 billion, and the rest of the vaccine budget was placed under the Unprogrammed Fund, and will consequently be financed by loans.  Reportedly, Duterte’s men have already signed a $500-million vaccine loan from the World Bank and a $400-million loan from the Asian Development Bank; $300 million more will come from the Asian Infrastructure Investment Bank.  The vaccine loans so far, totaling P58.5 billion, will be paid directly to the vaccine manufacturers. But the biggest constraint now is the tight supply of vaccines worldwide and the Duterte government’s late action in securing supplies last year. the Duterte government is pouring money into things that aren’t remotely related to the pandemic. T he 2021 budget poured P19.5 billion into the anti-insurgency fund under the NTF-ELCAC, which has been recently linked to red-tagging. That’s nearly twice the amount they want to spend on economic relief for businesses under the Guide bill. At the same time, House Speaker Lord Allan Velasco is also pushing to add  54.6 billion  to the pension fund of military and uniformed personnel. 

41. the government will open the year borrowing P200 billion from domestic investors. In a memorandum, the Bureau of the Treasury announced it would auction P60 billion in Treasury bills (T-bills) in January in 91-day, 182-day and 364-day tenors. The Treasury will issue P140 billion worth of Treasury bonds (T-bonds) during the month with maturities of seven years, four years, 10 years and seven years, in that order. In 2005, the Arroyo administration posted a debt-to-GDP ratio of 65.7 percent after hitting an all-time high of 71.6 percent in the prior year. The government’s financing for 2020 comprised 81 percent in local borrowings and 19 percent in external deals. For 2022, the economic team wants to reduce the mix to 77:23 in favor of domestic investors, with the program leveling to 75:25 by 2023 and 2024. The Philippines has amassed an outstanding debt of P11.73 trillion on 2021, the highest in history. Worse, the country’s debt pile, when measured against the gross domestic product (GDP), has spiraled to a 16-year high of 63.1 percent, surpassing the international threshold of 60 percent and even the 2021 projection of 59.1 percent

42. By the end of 2022, the government debt, which was mostly created to pay off COVID expenses, was estimated to reach P13.42 trillion, up from P11.73 trillion of 2021. The Philippine debt picture changed drastically through the years. It took 118 years for the country to raise its debt from P20 million in 1898 to P6.1 trillion in 2016, the year Duterte was elected as president. It will take just six years to escalate the debt burden from P6.1 trillion in 2016 to P13.42 trillion in 2022. Finance officials continued to express confidence that the country would be able to weather the debt challenge because debt-to-GDP ratio would remain in the 60 percent range, which meant debt won’t be out of control. Sonny Africa “ country faces the gargantuan task of paying off trillions of pesos in debt, the next administration should consider “taxing the rich.” “Since governments inherited debt from previous administrations, they had to generate revenues. The bad policy choice, however, was they were generating revenues by taxing the poor,”

43. Tax Reform for Acceleration and Inclusion (Train) Act and Corporate Recovery and Tax Incentives for Enterprises (Create) Act . The tax policy mirrors reliance on indirect consumption taxes which burden the poor while reducing taxes for rich and big corporations . The Train law reduced personal income and estate taxes but experts said it led to increase in the costs of oil, electricity and beverages which has a deleterious impact on the poor.The Create law reformed corporate income tax and incentives and reduced corporate tax rate from 30 to 25 percent. But Ibon Foundation said its studies showed that the Create law would lead to P251 billion in foregone revenue—P133.2 billion in 2020 and P117.6 billion in 2021—which could have been spent on a stronger COVID response. According to data from the Bureau of Internal Revenue (BIR), corporate taxes had a 3.5 percent Gross Domestic Product (GDP) share in 2008. It declined to 3 percent in 2019 and 2.8 percent in 2020. Consumption taxes, including Value Added Tax (VAT) and excise, increased to 3.7 percent in 2019 and 3.6 percent in 2020—higher than the 2.5 percent in 2008.

44. the 2017 Train law collected P197.3 billion from oil excise from 2019 to 2020. However, the government lost P14.5 billion as the law lessened estate and donor taxes.  According to Ibon Foundation’s computations, the government, from 2021 to 2023, was expected to lose P372 billion in revenues as the Create law reduces corporate income taxes. The government will also lose P5.85 billion because of exemptions from VAT, Documentary Stamp Tax and Creditable Withholding Tax through the Financial Institutions and Strategic Transfer (Fist) Act. Africa said that the next president should implement a “progressive tax system” as it would be beneficial since it could be used to pay debt while easing the hardship of poor and low-income Filipinos. The government should not burden the poor, especially in the midst of the COVID-19 crisis and the reality that there are “extreme income inequalities” and most Filipinos are without savings.

45. Data from the Bangko Sentral ng Pilipinas showed that in the third quarter of 2021, 74.8 percent of Filipino households have no savings while only 9.7 percent have deposit accounts.  out of 25 million Filipino families, only 0.6 percent had a monthly income of P219,000 to P10 million. 0.6 percent (143,000 families): P219,000 to P10 million 1.5 percent (358,000 families): P131,000 to P219,000 18.2 percent (4.3 million families): P44,000 to P131,000 32.1 percent (7.6 million families): P22,000 to P44,000 35.4 percent (8.4 million families): P11,000 to P22,000 12.2 percent (2.9 million families): P11,000 and below It also said that from 2020 to 2021, P13,000 to P32,500 in incomes were lost by the poor while 15.5 million families went hungry in 2020. Data from the Bangko Sentral ng Pilipinas showed that in the third quarter of 2021, 74.8 percent of Filipino households have no savings while only 9.7 percent have deposit accounts.