The Department of Finance (DoF) has advised president-apparent Senator Benigno C. Aquino III to rethink his plan of cutting taxes as it may affect the government's budget for social services.

Finance Undersecretary Gil S. Beltran, said the government has to cut its spending for pro-poor services, such as health, education and infrastructure if the next administration has a plan of reducing taxes.

Aquino, who won the May 10 presidential election according to unofficial tallies, earlier said the government may cut taxes as the incoming government improves collection and narrows the budget deficit.

“They may reduce taxes but they have to cut spending for the poor, and they have to remove these losing government-owned and-control corporations,” Beltran said in an interview.

Beltran had said several state firms will have to lose their subsidies should the government fail to raise additional revenues through new tax measures.

He added the DoF would propose that the incoming administration adopt “expenditure reform” if Congress fails to pass revenue measures.

“Cut in taxes will depend on the next administration's level of spending,” he added.

If the next government plans to maintain the level of spending without new tax measures, Beltran said the government has no choice but to secure more borrowings to finance the expenditures.

Instead of new taxes, Aquino vowed to track down tax evaders and smugglers to boost revenue and rein in a budget gap that widened to a record P298.5 billion last year, equivalent to 3.9 percent of gross domestic product.

“By utilizing the taxes already there, collecting them more efficiently, we will be able to manage the fiscal situation properly and responsibly,” Aquino said.

The government estimates the 2010 deficit at P293.2 billion, equivalent to 3.6 percent of GDP.

Finance Secretary Margarito B. Teves is urging the incoming administration to raise the value-added tax (VAT) from 12 percent to 15 percent to narrow the budget deficit.