THE tax relief package being pushed by President Ferdinand R. Marcos Jr. may put more money in the pockets of workers and small entrepreneurs, but economists warned that without measures to replace the foregone revenues, the government may be risking a ‘fiscal suicide.’
In his fifth State of the Nation Address on Monday, Marcos called on Congress to pass a package of tax relief measures for middle-class workers and small businesses.
The proposed measures include a higher personal income tax exemption, the removal of corporate income tax for qualified small businesses, and an amnesty covering several types of unpaid national taxes and the corresponding penalties.
De La Salle University economist Maria Ella C. Oplas was blunt about the possible fiscal cost of reducing revenues while the government continues to expand spending.
‘I would rather call it fiscal suicide for the administration,’ Oplas told the BusinessMirror. ‘Where will the government get the funds for its expenditures, if not through borrowing?’
Under the proposed reform, individuals earning no more than P350,000 annually would be exempted from personal income tax, raising the tax-free threshold by P100,000 from the current P250,000.
Under the existing graduated income tax schedule, annual taxable income above P250,000 but not exceeding P400,000 is taxed at 15 percent of the excess over P250,000.
This means an individual with annual taxable income of exactly P350,000 currently owes P15,000 in income tax. Raising the exemption threshold to P350,000 could therefore provide that taxpayer with savings of as much as P15,000 annually, although the actual benefit would depend on the tax brackets and computation rules ultimately approved by Congress.
The proposed package would also exempt qualified small businesses from corporate income tax and grant amnesty on unpaid income, estate, donor’s and value-added taxes, including the penalties and fees attached to these liabilities.
Ateneo de Manila University economist Alvin P. Ang said the measures are useful short-term safety nets for households and businesses directly affected by the oil crisis.
However, he warned that the proposals could pose fiscal risks because it is unclear how the resulting revenue losses and its broader assistance programs would be financed.
‘The challenge is how to fund all of these sustainably. Measures towards improving fiscal sustainability are missing,’ Ang told the BusinessMirror.
Another Ateneo economist, Leonardo A. Lanzona, said the Sona did not clearly explain how the proposed tax relief and other spending commitments would be financed, whether through higher taxes, additional borrowing or cuts elsewhere in the budget.
‘When an address defers this accounting to Congress to work out the details, it shifts the burden of unpopular tradeoffs onto legislators after the political credit for the promise has already been banked by the executive, and it leaves the public unable to judge whether the vision presented is fiscally serious or simply aspirational,’ Lanzona told the BusinessMirror.
Revenue, deficit implications
UnionBank of the Philippines Chief Economist Ruben Carlo O. Asuncion said the proposed tax relief package could further weaken government collections at a time when revenue targets have already been lowered.
Earlier this month, the Development Budget Coordination Committee cut the Bureau of Internal Revenue’s 2026 collection target by P38 billion to P3.393 trillion after lowering its economic growth forecast to 3.5 percent to 4.5 percent from 5 percent to 6 percent.
‘The key challenge is ensuring that foregone revenues are offset by stronger tax administration, improved collection efficiency, expenditure prioritization, and faster economic growth,’ Asuncion told the BusinessMirror.
He said significant revenue losses, if left unaddressed, could also make the government’s deficit targets more difficult to meet.
The DBCC recently widened its 2026 budget deficit projection to P1.658 trillion, equivalent to 5.4 percent of gross domestic product, from the P1.611 trillion, or 5.3 percent of GDP, projected last year.
The budget hole is projected to stretch until 2028-P1.695 trillion in 2027 and P1.722 trillion in 2028-before contracting in 2029 and 2030.
Without sufficient revenue offsets, Lanzona said the government would have to rely more heavily on borrowing to finance the tax relief package.
He noted that the Sona did not cite accompanying measures to broaden the tax base, such as higher excise taxes or fewer value-added tax exemptions.
Such borrowing could postpone, rather than eliminate, the need for fiscal adjustment, Lanzona said, leaving the full cost to surface late in Marcos’s term or under the next administration.
‘The fiscal reckoning likely falls either late in this term or onto the next administration, precisely the pattern where near-term political credit is banked ahead of medium-term discipline,’ he stated.
Pressure to cut spending
Avoiding a heavier debt burden would leave the government with another difficult option: cutting expenditures.
Oplas said the administration should consider closing or restructuring underperforming government corporations and state universities and colleges, while reducing unnecessary spending across the bureaucracy.
‘The government can finance its expenditures through fiscal prudence and lower spending. It should also recover the taxpayers’ money that was stolen,’ she added.
Oplas acknowledged that the proposed tax relief could also be intended to attract investments by lowering the cost of doing business.
But she said ‘it will take time for them to come in or start investing because they will still have to study the market and discern how sincere and effective the government is.’
Left unaddressed
Economists said the SONA also left several pressing macroeconomic and fiscal issues unresolved, depriving the public of a clear picture of the economy’s direction and whether the administration’s commitments are sustainable.
The speech did not provide an explicit economic growth target, debt-to-GDP figure or discussion of recent warnings about the country’s fiscal and development outlook, even as government debt has increased by roughly P6 trillion since 2022.
‘The speech substituted granular, disbursement-level accounting for aggregate fiscal exposure, which let the administration claim activity without confronting whether that activity is sustainable at current revenue effort,’ he said.
Oplas said the President cited numerous program outputs without providing adequate baselines or explaining their actual effects on households.
‘Numbers, especially if left with no baseline for comparison, don’t mean anything,’ she said.
‘The important question is: How did those programs affect people? He merely reported how many received assistance. He should have focused on the impact.’