A targeted subsidy program designed to shield poor consumers from a government plan to adjust excise taxes on petroleum products is now being drawn up by Malacanang’s economic team, according to Finance Secretary Carlos Dominguez III.

Dominguez also said that contrary to the common perception that fuel excise tax increases would affect the poor the most, DOF studies show that 60 percent of petroleum products are consumed by the top 10 percent of the country’s top income earners.

“In fact, the top 200,000 households [in terms of salaries and income] consumed 20 percent of the fuel products,” Dominguez, who heads the Cabinet’s economic cluster, said.

The finance chief said revenues generated from the fuel excise tax adjustments would be redirected to those who need financial aid the most through targeted subsidies such as cash transfers and increased spending on social protection programs.

“We are currently developing a targeted subsidy plan, similar to that of Indonesia, where the most vulnerable, especially [when it comes] to the increase in transportation costs, will be protected in a manner like that of the 4Ps (Pantawid ng Pamilyang Pilipino Program),” Dominguez said.

According to Socioeconomic Planning Secretary Ernesto Pernia, now is the best time to adjust fuel excise taxes when crude oil prices in the market are low and the impact on inflation is almost negligible.

Pernia pointed out that every P1-per-liter increase in fuel prices would translate into an inflation spike of just 0.1 percent.

Dominguez said the general rule in crafting the Duterte administration’s tax reform plan is that “the rich will have to pay more in taxes while the vulnerable sectors of society will be protected through highly targeted subsidies such as the conditional cash transfer program.”

He assured the bottom 50 percent of households and other low income earners that they would be fully protected through social protection programs and increased investment in human development.

“Tax reform is needed to achieve the larger goals of the administration and to make sure that everybody feels the country’s growth,” he said.

While the Duterte administration’s proposed tax reform package includes cuts in personal and corporate income taxes, it also aims to reconfigure other taxes to raise enough revenues to bankroll its 10-point socioeconomic agenda for inclusive growth.

Based on projections in ongoing discussions on the comprehensive tax reform plan, the government expects to lose P178.3 billion from the proposed cuts in personal income and corporate taxes, but it aims to offset the foregone revenues by generating about P368.1 billion from the proposed broadening of the tax base and reconfiguring or adjusting to inflation of other taxes, the final list of which is still being harmonized by the DOF with those filed by legislators in Congress.

Dominguez said that besides adjusting fuel excise taxes, the DOF is also reviewing the exemptions on the Value Added Tax (VAT) and zero-rated transactions, as well as tax incentives that were casually given out in the past to businesses to help raise revenues. Like fuel excises, poor and vulnerable consumers who will be affected by the VAT base broadening will also be protected.

He also said the deficit target would be increased to 3% of the Gross Domestic Product (GDP) under the 2017 proposed budget, which will “substantially be offset by lower debt service.”

“The proposed budget targets a deficit of 3% of GDP. This is only marginally higher than the previous years. But the slightly higher budget deficit will translate into substantial infrastructure programs and human capital expenditure next year. “

“This will enable our economy to expand basic education, and health as well as programs such as those of the Technical Education and Skills Development Authority (Tesda) that raise the skills profile of our labor force,” he noted.

The finance chief said the Duterte administration will not stop at overhauling revenue systems, but would also trim bureaucratic fat by, for starters, abolishing obsolete agencies.

According to Dominguez, the country’s stable fiscal situation allows the Duterte administration to carry out these reforms.

He cited the country’s double-digit revenue growth, which outpaced nominal GDP growth; higher tax collections as a result of tax administration reforms and the implementation of the Sin Tax Law; and the improving debt-to-GDP ratio, which has reduced the outstanding national debt to 44.7% of the GDP by the end of 2015.

“Today, only a third of the national debt is from foreign borrowing compared to almost half in 2009. The foreign debt component of the national debt declined from 15.6% of GDP in end-2015 to 15.3% of GDP in end-June 2016,” Dominguez said.

“Our policy is to source as much of our financing needs from domestic sources,” he said. “At end-2015 interest payments for the outstanding national debt declined to 14.7% of revenues. That trend will continue.”

He likewise pointed out that in 2015, total revenue collections amounted to P2,109 billion or 10.5% over the previous year, with tax revenues reaching P1,815.5 billion or 5.6% higher than the preceding year.

Through the first half of 2016, revenue collections were at P1,101 billion, a 1.4% increase over the first half of 2015, he added. “If we net out the transfer of the Coco Levy Fund, a non-recurring item, the improvement in collections will be 7%.”