Time for cleanup: Why President Marcos urgently needs fiscal reforms

Originally published on BusinessWorld

Today is President Ferdinand Marcos, Jr.’s fourth State of the Nation Address (SONA). One of the issues he is anticipated to address is the state of the nation’s fiscal health.

President Marcos’ political support has been waning, and public trust has been diminishing, as evidenced by the results of this year’s midterm elections. Clearly, he needs to move beyond business-as-usual policymaking as he enters the second half of his term.

It is becoming increasingly clear that the Philippines is facing a serious fiscal problem. The World Bank recently recommended “much stronger tax reforms” given that growth is estimated to slow down this year until 2027. “There is a need, therefore, to really double down on reforms so that the Philippines can safeguard and accelerate its growth journey,” the Bank noted in a June press briefing.

The Philippines faces mounting fiscal pressure due to an increasingly constrained budget, growing public expenditure needs, stagnating tax revenues, and increasing public debt. Our revenue efforts over the past few years have fallen short, resulting in an elevated fiscal deficit that should have been unwound after the COVID-19 pandemic.

Our rising debt service bill, up by 73.72% this April, exerts additional pressure on the country’s limited fiscal space. Our debt-to-GDP ratio was at 39.2% in 2019 before the pandemic, and is at 62% as of March 2025, years after the pandemic necessitated high rates of spending and borrowing. Our national budget has been bloated with opaque bicameral conference committee insertions of funds used for political patronage and is the subject of several Supreme Court petitions.

These fiscal pressures have a constraining effect on critical investments, particularly in human capital development programs such as quality healthcare.

We therefore need bold yet urgent and sound revenue-generating measures in light of our serious fiscal problem. In particular, the Marcos Jr. administration is called upon to introduce health taxes, such as taxes on alcohol and sweetened beverages, not only to broaden the fiscal space but also to sustainably finance accessible and quality healthcare. These taxes are popular, and at the same time they can yield significant revenues and promote health.

To make matters worse, for fiscal year 2026, the Department of Finance (DoF) reported that P53.26 billion has been allocated to the Philippine Health Insurance Corp. or PhilHealth in the National Expenditure Program (NEP). However, given PhilHealth’s commitment to across-the-board benefit expansion, the recurring shortfalls in past appropriations, and PhilHealth’s negative equity due to mounting insurance contract liabilities (ICL), this allocation is clearly inadequate. The government has yet to fully allocate the earmarked funds mandated by the Sin Tax and Universal Health Care (UHC) Acts to PhilHealth.

To summarize, the National Government must rebuild fiscal space by raising health taxes. Higher excise taxes on “sin products” mean increased tax revenues to fund existing health and nutrition programs.

At the same time, raising health taxes discourages consumption of products that contribute to non-communicable diseases (NCDs) like cardiovascular disease, diabetes, and cancer — the country’s leading causes of death. In 2023 alone, NCD-related health spending reached P728 billion. Alcohol, in particular, does not only contribute to NCDs, but also has a profound impact through domestic violence, mental illness, and road crashes.

We also hope that the Supreme Court will soon release its ruling on the PhilHealth fund transfer case, which concluded oral arguments in April of this year. The petition filed against the zero-budget allocation to PhilHealth in 2025 should be decided on before the 2026 budget is passed into law, as the high court’s decision will profoundly shape the course of next year’s budget deliberations and set an important precedent for transparency and accountability in fiscal governance.

Dhelyn Dela Cruz and Pia Rodrigo are researchers for Action for Economic Reforms.