Amid elections, let’s talk about why we need health taxes now

Two weeks before the 2025 midterm elections, the political spotlight is understandably focused on the widening and seemingly irreparable rift between the Marcos and Duterte factions. Their political feud may dominate headlines, but the deeper issues at stake — justice, accountability, governance, and the rule of law — are what truly matter. This political rupture will likely reshape the political landscape and test our country’s democratic institutions.

Yet even as the nation grapples with this political confrontation, we must not lose sight of another grave and connected problem: the country’s worsening fiscal situation. If left unaddressed, fiscal deterioration would cripple the capacity of the current and succeeding administrations to deliver basic services, protect economic stability, and rebuild trust in governance. Economic weakness will only deepen political instability.

The warning signs are already showing: GDP growth has slowed from 7.6% in 2022 to below 5.5% and 5.7% respectively in 2023 and 2024. The Philippines has underperformed not just against its own targets but also against the expectations of multilaterals who have downgraded their projections for the country from previous years. Given this loss of economic momentum, the Marcos administration’s goal of achieving upper middle-income status by 2025 is now likely out of reach.

The fiscal deficit remains above 5% of GDP. Debt-to-GDP stayed above 60% by end-2024, with debt servicing costs rising to 12.1% of the budget last year and set to consume 13.8% of the national budget in 2025. Yet despite these pressures, the 2025 national budget reflects cuts to critical human capital investments in health and education, while expanding pork-laden ayuda (assistance) programs designed more for political patronage than for genuine development.

The question now is not whether the government needs new sources of revenue, but rather, how quickly and decisively it can act. And one of the clearest, most urgent measures available is having health taxes: higher taxes on tobacco, vapes, alcohol, and sugar-sweetened beverages.

The economic argument is overwhelming. Alcohol and tobacco consumption, through healthcare costs, lost productivity, and premature deaths, inflicted an estimated P1.1 trillion in economic damage or nearly 5% of the country’s GDP in 2021. Yet excise tax collections from these products amounted to just P266.6 billion in 2021, barely one-fourth of the total cost. The burden of this imbalance is borne not by the industries that profit, but by ordinary Filipino taxpayers who fund public hospitals and healthcare programs.

Health taxes offer a “double dividend”: they raise much-needed revenues while simultaneously reducing the social and economic harm caused by unhealthy consumption. According to the 2024 Budget of Expenditures and Sources of Financing (BESF), the government could have generated P76.1 billion in incremental revenue in the first year alone by increasing taxes on alcopops, softdrinks, and junk food. Yet in the 2025 BESF, these measures have disappeared, signaling that the administration may have abandoned a critical health tax reform. A broader alcohol tax reform, such as that proposed in House Bill 11320 filed by Anakalusugan Party-list Rep. Ray Reyes, would be even more impactful. Based on projections by Action for Economic Reforms, Mr. Reyes’ bill could yield an additional P69 billion in revenue over the next five years, while reducing the public health burden of alcohol and strengthening funding for Universal Health Care.

But health taxes are not just about generating revenue. They are about justice and fairness: making those who profit from harm pay a greater share. They are about discouraging consumption patterns that are devastating public health, particularly among vulnerable populations such as young and low-income Filipinos.

Meanwhile, reducing health taxes, as House Bill 11360 — which health advocates refer to as the Sin Tax Sabotage Bill — seeks to do, would be not only irresponsible but reckless in the face of the fiscal crisis. Finance Secretary Ralph Recto’s silence on this industry-backed sabotage of revenues, even as he publicly acknowledges the need for new taxes, is a glaring contradiction.

Instead of championing health taxes, Mr. Recto has pinned his hopes on hiking capital gains, estate, and donor’s taxes under the so-called GROWTH (Government Revenues Optimization through Wealth Tax Harmonization) Bill. This strategy is flawed. History and tax reform experience, particularly the objectives of the original PIFITA (Passive Income and Financial Intermediary Taxation Act) proposal, show that higher capital gains taxes rarely yield significant revenues. Instead, they encourage tax avoidance, drive up evasion, complicate tax administration, and risk spooking financial markets, especially when the country already faces external economic pressures.

Health taxes, from a political perspective, can also generate public support. A March 2024 national survey by polling firm WR Numero, commissioned by Action for Economic Reforms, found overwhelming public backing for health taxes: 72.1% support higher tobacco taxes; 69.3% support higher vape taxes; 67.7% support higher alcohol taxes; and 56.2% support higher taxes on junk food and soft drinks.

Filipinos understand the need for reform. It is the politicians who are lagging behind.

And President Marcos must recognize this too. While he struggles to maintain a hold on his political coalition, he must remember that governance should not pause for elections. Even if his administration’s slate wins a plurality of seats in the midterm elections, failure to address the country’s deeper economic and fiscal challenges will reflect poorly on his leadership, both now and in history’s judgment.

The next Congress and administration must make a choice: protect the profits of alcohol, tobacco, and junk food industries, or protect the health and economic future of the Filipino people. The evidence is overwhelming, and the public support is strong.

We need higher health taxes now — to rebuild fiscal space, to safeguard public health, and to secure a more stable and equitable future.

AJ Montesa is a program officer for research and heads the tax policy team of Action for Economic Reforms.