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If
Filipinos think the country’s financial problems will
start to ease with tempered inflation and lower taxes
next year, think again—bigger problems, particularly on
the fiscal side, are about to drop a surprise next year.
In the
presentation of his latest paper titled “Philippines:
Fiscal Behavior in Recent History,” former budget
secretary and University of the Philippines (UP)
economist Dr. Benjamin Diokno is concerned the effects
of the recently legislated income-tax exemptions that
will cut revenues by about P20 billion, and the lowering
of the corporate income tax to 30 percent from 35
percent next year, will further constrain the already
meager financial resources of the government.
As a
result, Diokno expects the government to further
increase its borrowings in the next few years and even
said a balanced budget, even by 2010, is impossible. He
also said the government plan for a deficit of P40
billion to P45 billion in 2009 is not feasible.
However,
Diokno said, this is not to say that a fiscal crisis is
again looming, but that a fiscal crisis may occur should
the peso depreciation worsen by a rapid increase in
interest rates. If this happens, he said there could be
an Argentina-like fiscal crisis, already foreseen by
Diokno and 10 other UP economists in 2004.
“The
present fiscal situation is not sustainable despite the
fact that the government is going on a rampage on
spending the windfall on value-added tax [VAT]
collection. It’s [the fiscal situation] built on shaky
grounds,” Diokno said during his lecture at the UP
School of Economics in Diliman on Friday.
Finance
Undersecretary Gil Beltran, a reactor to the paper of
Diokno at the lecture, confirmed that the government
does not expect revenues to significantly increase next
year due to the exemptions and cut in corporate income
tax so that income is projected to be almost flat—at
about 14.7 percent from this year’s 14.6 percent of
gross domestic product. “This is, however, better than
going down.”
Diokno
said numerous other problems also need to be addressed
immediately, such as the underfunding of education,
health and public infrastructure in the past seven years
of the Arroyo administration.
Diokno
said catching up with lost time and money for these
three sectors will need the government to double its
efforts, especially since the country is committed to
achieving the eight Millennium Development Goals by
2015.
In the
past seven years, Diokno said the Arroyo administration
has sacrificed spending for education, health and public
infrastructure in favor of debt servicing, which he said
took the biggest chunk in the budget.
The
combined payment of interests and principal amortization
exceeded tax revenues, he noted, so that for every P100
collected by the government, the debt service was around
P80 to P85.
As a
result, the government borrows funds to finance its
other projects under education, health and public
infrastructure, bloating the country’s deficit to around
P200 billion every year since 2002.
“Compressing social spending is antigrowth and antipoor.
Public spending for health and education is in the
nature of investment in human capital, a necessary
condition for growth and development. It also improves
the poor man’s chances of getting employed, which is his
only sustainable way out of poverty,” Diok-
no said.
In order
to alleviate the situation, he urged the government to
recreate by law the joint legislative tax commission of
the 1970s to develop a multiparty support for
tax-legislation and minimize the delay in developing a
tax-reform package at the start of every administration.
Diokno
also said it is important for the next president to
create a multiyear budget plan that will address the
needs of a growing population that must be good for six
years and submitted to Congress for approval.
Apart
from these, Diokno also appealed to the government to
discontinue projects that are not needed at this time.
Some of these are the big airport projects presented at
the two previous State of the Nation Addresses. |
