MANILA – In his first State of the Nation of Address (SONA), President Ferdinand Marcos Jr projected a strong and self-confident leadership. In a relatively lengthy speech delivered in a mixture of Filipino and English, the new Filipino president promised decisive leadership and a new era of economic prosperity.
“We live in difficult times brought about by some forces of our own making, but certainly, also by forces that are beyond our control. But we have, and we will continue, to find solutions,” Marcos said in his first national address, which laid down his vision for the Philippines for the next six years.
Throughout his speech, Marcos Jr largely avoided controversial issues such as constitutional change, human rights, democracy and corruption and instead focused on his economics-centric agenda.
The namesake son of a former dictator vowed the country’s gross domestic product (GDP) would go as much as 8% annually until 2028 when his constitutionally-mandated six-year term in office will end. He also promised to reduce the poverty rate from over 20% in recent years to single digits before the end of the decade.
Crucially, the Filipino president promised to liberalize the economy in order to encourage foreign investment, slim down the bureaucracy to enhance governance efficiency and raise new taxes by focusing on the thriving digital commerce sector.
“Our tax system will be adjusted in order to catch up with the rapid development of the digital economy,” Marcos said.
During his SONA, the Filipino leader, who is also the concurrent agriculture secretary, also made several populist promises including subsidies for the poorest families amid rising inflation as well as debt forgiveness for thousands of impoverished farmers across the country.
Similar to his inauguration speech, Marcos Jr largely sidestepped hot-button issues including the thousands of extrajudicial killings under his predecessor’s deadly drug war and the plague of disinformation that has contributed largely to political polarization in recent years.
The new Filipino president instead zeroed in on bread and butter issues, which topped the list of most urgent concerns for Filipinos in the Pulse Asia Research survey released earlier this month.
For the majority of Filipinos, inflation, wages, employment and poverty alleviation are the top four national concerns. Last month, inflation hit a record-high of 6.1%, the second highest in the region. Meanwhile, unemployment is at 6%, the highest in Southeast Asia.
Rising fuel costs, partly driven by Russia’s invasion of Ukraine, have forced up to a fifth of public transport workers into premature retirement.
In response, the government has responded with higher interest rates to cool down the economy as well as expanded subsidies for most vulnerable sectors. According to the Philippine Finance Department, more than 90 billion pesos (US$1.7 billion) have been allocated for subsidies and conditional cash transfer programs for the poorest Filipinos.
Expanded subsidies, however, have placed growing pressure on government finances. Massive government borrowing under former president Rodrigo Duterte, which increased by more than 20% last year, has presented a major fiscal conundrum to the new administration.
The Bureau of the Treasury’s data showed that the country needs to raise 249 billion pesos ($4.2 billion) annually in incremental revenues for the next 10 years to pay the country’s trillion pesos ($60 billion) in incremental debt.
In response, the Department of Finance proposed various measures to yield an average of roughly 284 billion pesos ($5 billion) annually to cover debt obligations.
“Pursuing the fiscal consolidation and resource mobilization program as proposed will help us continue to spend on socioeconomic programs, maintain our credit ratings, and grow out of our debt,” former Finance Secretary Carlos Dominguez III said ahead of his retirement earlier this year.
Just before the Marcos administration took the reins, the Department of Finance proposed expanding the value-added tax (VAT) base and repealing exemptions to save 142.5 billion pesos ($2.6 billion)
According to the DOF’s fiscal consolidation plan, the government should levy new taxes on luxury goods, social media influencers, motorcycles, gaming and single-use plastics. It also proposed a 12% VAT on digital services and online advertising to generate 13.2 billion pesos yearly ($250 million). Among other sectors up for new taxes were cryptocurrencies as well as a carbon tax
Initially, however, Marcos Jr’s top economic managers resisted new taxes early in office, partly out of fears of alienating the public amid a fragile pandemic recovery.
Back in May, then-central bank governor Benjamin Diokno, who was appointed as Marcos Jr’s finance minister, insisted that enhancing tax collection efficiency through digitalization and anti-corruption measures would be sufficient.
“To me, grow the economy, focus on tax administration first, improve the collection,” Diokno said, insisting that he is “satisfied with the current tax structure.”
The technocrat maintained “I am not worried about the level of the debt” since he saw it as “easily manageable” as long as the economy maintained strong momentum.
The Philippines’ economic outlook, however, began to shift shortly thereafter as inflation began to spike and global economic conditions deteriorated amid the ongoing war in Ukraine, economic slowdown in China and interest rate hikes by the US Federal Reserve.
In response, the Philippines’ Socioeconomic Planning Secretary-designate Arsenio Balisacan proposed expanding the country’s tax base.
“If you want more public services, if you want to invest a lot into our health and education and social sector, and to our farmers, you must have sources of money for that. Obviously, you can only go so far with an improved tax administration,” Marcos Jr’s other top technocrat said last month.
“I think we should. Part of the fiscal consolidation is to eventually also come up with new sources of tax,” Balisacan argued, while admitting that “You don’t want to raise, I suppose, taxes when economic conditions are difficult.”
The tax issue is also particularly sensitive for the Marcoses, who reportedly have an estate tax liability of 203 billion pesos more than two decades after the Philippine Supreme Court demanded the family settle unpaid taxes to the government.
In his SONA, however, Marcos Jr called for extraordinary measures to enhance fiscal stability and expand government programs. The new Filipino president announced the imposition of a new value-added tax on digital services, which is expected to generate 11.7 billion pesos ($208.6 million) in revenue in 2023 if the requisite laws are passed by Congress, which is dominated by Marcos allies.
By strengthening the country’s fiscal account, Marcos argued, the Philippines will be in a strong position to maintain robust infrastructure spending, boost economic growth and cut the debt-to-GDP ratio to below 60% by 2025 and more than halve – from 8% to 3% – the budget deficit by 2028.
Marcos Jr also promised to liberalize the country’s investment laws to attract foreign capital and technology, while “rightsizing” the bureaucracy in order to cut red tape and corruption.
He described his bureaucratic reform package as a “reform mechanism that seeks to enhance the government’s institutional capacity to perform its mandate and provide better services while ensuring optimal and efficient use of resources.”
“The rightsizing efforts will also involve the conduct of a comprehensive strategic review of functions, programs and projects that will cut across various agencies,” he added.
Not short on populist promises, however, Marcos Jr also called on the government to expand food and fuel subsidies to indigent communities. As the concurrent agriculture secretary, he called on the government to impose a moratorium on farmers’ debt payments under the country’s agrarian reform program, as well as distribute thousands of hectares of government-held land to veterans and landless farmers.
Marcos Jr also vowed to enhance public investment in the agriculture sector, expand subsidies for fertilizers, seeds, feeds, fuel and pesticides, and enhance the country’s overall food self-sufficiency. The agriculture initiatives were warmly welcomed by farmer groups, who had been desperately seeking greater government assistance in recent years.
“Condoning loans of small farmers and instituting financial assistance to help farmers are positive developments for the agriculture sector. It is, by and large, a welcome start,” Samahang Industriya ng Agrikultura executive director Jayson Cainglet told local media following the SONA.