The country’s finance chief said on Monday several provisions in stimulus bills filed separately in the upper and lower houses of Congress are “financially unsustainable.”
Finance Secretary Carlos G. Dominguez III told reporters they already made lawmakers aware of the huge budget deficit that the government will incur from passing the stimulus bills, including the P1.3 trillion “Accelerated Recovery and Investments Stimulus for the Economy” (Arise), which was recently approved on third and final reading by the House of Representatives.
The pending stimulus bills in Congress, Dominguez added, are considered as a form of supplemental budget “because it requires spending over and above the current budget.”
“The constitution specifically requires the certification of excess funds and new revenue sources to support the passage of any supplemental budget. In running a business or company, we know that borrowings or loans are not revenues. We appreciate the wisdom behind the constitutional provision for in the absence of additional revenues or income, we jeopardize our fiscal sustainability,” Dominguez said. “However, multiple stimulus bills filed by legislators from both houses include a slew of additional provisions that make the proposals fiscally unsustainable.”
The lead authors of the Arise bill in the House of Representatives on Monday asserted their measure is “constitutional.”
Need to reconcile
While Dominguez said the Senate has already “downscaled” its version of a stimulus bill, Dominguez added they still need to reconcile both stimulus measures from the upper and lower chambers.
“The Senate has already downscaled their proposal. But you know, their proposal is so far from the House proposal bill. The House bill is P1.3 trillion and the Senate is P140 billion; so that it’s like a little over 10 percent only of what the House bill is,” he said during the Sulong Pilipinas forum with the business community. “We have to have some kind of reconciliation of the bills before we really can move forward.”
The finance chief also belied a report that he refused to spend because he does not want to borrow to finance a bigger stimulus bill.
He argued that the Duterte administration “borrowed the most amount of money in any 5-month period compared with any administration in the past.”
The situation
According to the DOF chief, the government has “funded with borrowing within the budget that we have.”
“What we cannot fund for borrowing is additional spending over and above the budget and, by the way, in our borrowings, we have done it very conservatively,” he said. “We have achieved very low rates and we have achieved extended terms. So, that is the situation that we are at and people should understand that is a constitutional limitation.”
Following criticisms from various sectors, including business groups that the Philippines has one of the lowest spending for stimulus programs among Southeast Asian nations, Dominguez defended his stance that the “fundamental decision” does not depend on the size of the stimulus bill but on the level of the fiscal deficit that will result from funding the stimulus bill.
Right in the middle
According to Dominguez, the finance department has “determined that in order to have a sustainable fiscal deficit, and also to convince people who invest in our economy from the outside and the domestic economy that our fiscal deficit should not exceed the average of the fiscal deficits of our neighbors and our peers.”
“So if we are too high on one end or too low on one end, it doesn’t do any good,” he added. “If we are right about the middle of the fiscal deficits of our rating peers and our neighbors, I think we will be in a safe place.”
For this year, the economic managers had said that the government can finance a budget deficit of up to 9 percent of GDP, which will put the country in the median of comparable countries in Southeast Asia and East Asia, among peers with similar credit ratings, and among other emerging market economies.
Deficit targets
Earlier, the economic team said their own proposed P173 billion fiscal stimulus program—Bayanihan II and the outright 5-percent cut in corporate income tax rate under Corporate Recovery and Tax Incentives for Enterprises Act (Create)—will already add an additional deficit of 0.9 percent of GDP and push the budget deficit this year to 9 percent of GDP.
In his presentation, Dominguez laid out three key concerns raised by the economic team on the stimulus bills in Congress.
For instance, he said, decisions for the provision of the credit should not only be coursed through but determined and managed solely by government financial institutions, which “possesses the expertise on such functions rather than the various executive agencies with different mandates.”
Still, Dominguez said the DOF supports it the proposed cash-for-work program but proposes that this be redirected towards pressing needs related to managing the pandemic, such as the hiring of contact tracers.
‘Fiscally viable’
The economic team also recommended that wage subsidies be “fiscally viable” in which beneficiaries should be from areas under enhanced community quarantine and distribution should be done via digital payout technologies.
In the same forum, the head of the government’s economic team also pushed for four legislative measures to ensure a quick recovery of the ailing economy.
These include infusing more capital to government financial institutions, such as Land Bank of the Philippines (LandBank), the Development Bank of the Philippines (DBP) and the Philippine Guarantee Corp., to enable them to assist micro-, small- and medium-enterprises and other companies affected by the pandemic.
“Right now we are suggesting that the Landbank of the Philippines and the Development Bank of the Philippines organize a new GOCC [government-owned and -controlled corporation] that will be capitalized and will be empowered to make investments in companies that are that are important to the national interest and that need injections of capital in the form of preferred shares, in the form of ordinary common shares or whatever,” he said.
‘Legislative imperatives’
Dominguez added that three other “legislative imperatives” include allowing banks to dispose of non-performing loans and assets, reducing the corporate income tax rate from 30 percent to 25 percent and other investor-friendly reforms. This could be through a recalibrating or amending the Agri-Agra Reform Credit Act to make it easier for banks to pump fresh capital into the farm sector.
On Create, the finance chief also replied positively when asked if the DOF will still push for the retroactive implementation of the outright five percent cut in corporate income tax cut by July onwards if the bill would be passed upon the resumption of session in July.
Image credits: AP/Wong Maye-E