THE Executive’s proposed P170-billion fiscal stimulus program to keep the economy afloat amid the fallout from the pandemic will widen the country’s budget deficit to 9 percent of GDP, or P1.7 trillion based on constant 2018 prices.
Based on Finance Secretary Carlos G. Dominguez III’s presentation to lawmakers on Tuesday, the proposed program—a combination of the second phase of the Bayanihan to Heal As One Act and CREATE, the revised version of the Citira—has a combined value of P173 billion because he only included the total cost for Bayanihan II (P131 billion) and the immediate reduction of the corporate income tax from 30 percent to 25 percent CIT (P41.96 billion). He did not include the P3.78 billion from the additional two-year sunset period for companies to keep enjoying existing fiscal incentives.
Citira, or the Corporate Income Tax and Incentives Rationalization Act approved in 2019 by the House of Representatives and pending in the Senate, has been recast to CREATE or Corporate Recovery and Tax Incentives for Enterprises Act to take into account the devastating impact of the Covid-19 pandemic on business.
Acting Socioeconomic Planning Secretary Karl Kendrick Chua told the BusinessMirror that the expected additional deficit of 0.9 percent of GDP from their proposed fiscal stimulus program was not yet accounted for in the revised deficit-to-GDP ratio projection of the Cabinet-level Development Budget Coordination Committee (DBCC) this year at 8.1 percent of GDP or P1.56 trillion.
Sought to clarify if the expected additional deficit from the recovery program being proposed by economic managers was already included in the revised DBCC deficit projection, Chua said: “Additional, so max of 9.”
Of the expected additional deficit of 0.9 percent of GDP from recovery program, new programs under Bayanihan II will account for 0.67 percent of GDP while the “repackaged” Citira, now CREATE, will contribute an additional deficit of 0.23 percent of GDP, according to a separate document obtained by the BusinessMirror.
Despite increased deficit spending, the DBCC earlier said that the national government’s deficit-to-GDP ratio will remain in the median of comparable countries in Southeast and East Asia, among peers with similar credit ratings, and among other emerging market economies, as long as the ratio does not exceed 9.0 percent.
Below this threshold, the debt-to-GDP ratio will be around 50 percent, far lower than the most recent peak of 71.6 percent in 2004.
The government’s revised deficit projection of P1.56 trillion or 8.1 percent of GDP is 2.8 percentage points higher than its previous estimate of 5.3 percent of GDP announced last March.
This, as the government expects revenue collection this year to go down to P2.61 trillion from the P3.17 trillion program previously approved by DBCC.
On the other hand, disbursements are estimated to increase to P4.18 trillion from the previous projection of P4.16 trillion due to higher government spending for Covid-19 initiatives.
Bayanihan II, CREATE cost: P176.7 billion
Based on documents earlier obtained by the BusinessMirror, the Bayanihan II proposal of DBCC was estimated to cost the government a total of P131 billion, while the CREATE bill is seen to cost the government a total of P45.74 billion due to the immediate reduction of corporate income tax rate from the current 30 percent to 25 percent starting July this year (P41.96 billion) and the grant of additional 2-year sunset period to existing recipients and regional operating headquarters in giving up their incentives (P3.78 billion).
Overall, the proposed Bayanihan II and CREATE are set to cost the government a total of P176.74 billion this year.
The Executive’s proposed program was estimated by the economic managers, in an earlier powerpoint they presented to the House of Representatives, as representing an additional deficit of 0.9 percent of GDP or P160 billion.
Asked to explain the discrepancy on the combined value (P160 billion and P173 billion), a source said this was because a part of Bayanihan II is already in the 2020 budget. That is why the incremental value of P160 billion was the one accounted for when the economic managers computed for additional deficit.
“So, [the P160 billion is] incremental, or 0.9 percent of GDP,” the source told the BusinessMirror.
With a report from Cai. U. Ordinario
Image credits: Roy Domingo
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