THE Department of Finance (DOF) said the national government debt this year would have hit P15.4 trillion—higher by P2.2 trillion—had the Duterte administration given in to lawmakers’ proposed Covid-19 stimulus bills and other “revenue-eroding” measures, sparking an angry retort from a Congress leader.
Finance Chief Economist and former Undersecretary Gil Beltran said the government opposed the passage of several stimulus bills since these would further increase deficit and debt.
The chairman of the House Committee on Ways and Means slammed his “aimless finger pointing.”
The debt-to-GDP ratio and deficit would not be that big since bigger stimulus bills may have even cushioned the blow of Covid-19 pandemic to the economy, according to Albay Rep. Joey Sarte Salceda.
“Every single comment that the DOF submits to the House tax committee is listened to, and if we do not adopt their recommendation, at the very least we try to compromise. So, I hope we can avoid aimless finger pointing. The challenge now is to outgrow the debt, and we need to work together,” added Salceda.
“Frankly, I don’t see the point [in DOF’s seeming credit-seeking at the expense of Congress]. First of all, it was Congress that also decided to pursue the kind of stimulus measures that we funded, and what we did not pursue,” said Salceda.
“Second, the figure counts proposals of very similar nature, so I think some double counting may have been done. The only major proposal [the proposed Bayanihan to Arise as One Act] was P1.4 trillion of which P800 billion was in net lending [assets] not current outlay [outflow]. Obviously an overstatement at best,” he added.
According to Salceda, it’s not fair to lump together all the spending bills as if Congress would have enacted all of them without deliberations.
“But assuming no double counting took place, and indeed all distinct provisions from all proposals amounted to some P2.2 trillion, the question to ask is: would GDP have collapsed by as much as it did if we acted with a bigger, more comprehensive stimulus package? Remember, we declined larger than anybody did in 2020. And as the economy declines, so too does revenue collection. So, debt-to-GDP and the deficit would likely not have been as big as simply adding the cost of the proposed stimulus,” he said.
“Lest we forget,” added Salceda, “the Committee on Ways and Means routinely removes tax exemptions and extra tax incentives in proposed bills, and instead aligns them with the tax code. The Committee on Appropriations, which I am Vice Chair of, also routinely deletes special appropriations from revenue-negative bills.”
Salceda also reminded Beltran that Congress partnered with DOF on the entire tax reform program as well as the economic recovery plan of the Duterte administration.
P140-B limit
Despite objections from many other stakeholders, Beltran said the DOF worked closely with lawmakers to limit to P140 billion the cost of interventions under the Bayanihan to Recover as One Act, as they considered the impact of additional spending on government borrowings.
“The government did not support several stimulus bills, each proposing hundreds of billions of additional appropriations, precisely because we understood that this would translate into further increases in the deficit and debt,” Beltran said in statement.
“As we have said over the past few years, the government has consistently exercised fiscal prudence in responding to the Covid-19 pandemic. We spent what we had to, but not more than what we could afford. In fact, had we acquiesced to pressure for us to spend more, our debt would have increased by P2.2 trillion more and reached P 15.4 trillion,” he added.
Among the bills that were included in DOF’s computation were the following:
■ Proposed value-added tax (VAT) exemptions for oil, liquefied petroleum gas (LPG), electricity and other commodities and abolition of other taxes, such as those proposed by Representatives Ferdinand Gaite, Carlos Isagani Zarate, Eufemia Cullamat, Sergio Dagooc, Presley De Jesus, Adriano Ebcas, Arlene Brosas, Godofredo Guya, Alfred Vargas, and Vilma Santos Recto; as well as Senators Grace Poe, Ralph Recto, Juan Miguel Zubiri, Aquilino Pimentel III, Emmanuel Pacquiao and Francis Pangilinan;
■ Various Covid-19 stimulus bills and subsidies, such as those proposed by Reps. Jose Ma. Clemente Salceda, Stella Luz Quimbo, Sharon Garin, Michael Edgar Aglipay, De Jesus, Guya and Dagooc, and Senator Imee Marcos;
■Proposed exclusion of the 13th month pay, performance-based bonus and other income from taxable income, such as those proposed by Representatives Santos Recto and Victor Yap; and the
■ Appropriations for new departments or government entities proposed by various legislators.
To deal with the Covid-19 impact in a “strategic and cost-efficient manner,” Beltran said they secured additional financing from multilateral lenders to procure vaccine supply for the target population.
“The accelerated vaccination program, along with shifting to the alert level system with granular lockdowns and increased public transport capacity, enabled us to aggressively reopen the economy and restore jobs,” he said.
Apart from this, the DOF said “fiscal sustainable economic recovery programs were enacted, including Financial Institutions Strategic Transfer (FIST) Act, which helps banks extend credit to more sectors by allowing them to offload non-performing assets and non-performing loans to FIST corporations; and the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which balanced a reduction in the corporate income tax (CIT) rate with the rationalization of fiscal incentives.
As of end-April, the national government’s outstanding debt hit another record high at P12.76 trillion, just two months before President Duterte steps down from office.
The national government’s debt-to-GDP ratio as of the first quarter of the year rose to a 17-year-high at 63.5 percent, above the internationally recommended 60-percent threshold by multilateral lenders for emerging markets like the Philippines. It is also the highest since the country’s debt-to-GDP ratio hit 65.7 percent in 2005 under the Arroyo administration.
Finance Secretary Carlos G. Dominguez III has since said that the current debt level remains “sustainable” as the country needed to ramp up its borrowings for Covid-19-related expenditures amid weaker revenue collections during the pandemic.
Debt
According to Salceda, it doesn’t matter how much a country borrows, and “what matters is how much it borrows relative to how much it earns.”
“What should matter is whether our debt is growing faster than the size of our economy. Because if we are significantly outpacing debt growth, it means we are spending our borrowings right—and we can pay our debts well,” he added.
Pointing to the Philippines’s debt-to-GDP of 61 percent, Salceda said, “that’s high, but not too high, especially given our recent GDP growth rate.”
“PGMA [former president Gloria Macapagal-Arroyo] spent the entirety of her first term with continually rising debt levels above 60 percent, which prompted us to undertake the RVAT reforms that, in turn, saved us from fiscal crisis in time for PNOY [former president Benigno Aquino III] to benefit from expanded fiscal space,” he said.
Salceda, however, said the country’s debt-to-GDP level is expected to decline every year from 2023.
“And credit rating agencies have suggested that as long as our fiscal conditions do not deteriorate, we should be okay. So, as long as we can keep this level going down, and make enough fiscal space for surprise events, we wouldn’t be in deep trouble,” he said.
“My own take is, let’s create the additional fiscal space—my estimate is around P326 billion annually, eventually—so that we can keep funding BBB [Build, Build, Build], UHC [Universal HealthCare], Free College, 4Ps, and other social and economic services that are important to our people, without funding debt service with more debt. I will work with the new economic team to figure that out,” Salceda added.
Proposals for next govt
The DOF recently proposed that the next administration implement a set of fiscal measures seen to generate a total average of nearly P350 billion per year from 2023 to 2027 to help the country outgrow its debt at a faster rate.
The three-package proposed fiscal consolidation and resource mobilization plan includes the imposition of several taxes, 3-year deferment of the second tranche of reduction in personal income tax rates, and the expansion of value-added tax (VAT) base and removal of VAT exemptions, except for education, agricultural products, health, financial sector, and raw food, among others.
To prevent the government from using borrowings to pay for the P3.2 trillion in incremental debt incurred during the Covid-19 pandemic, the Bureau of the Treasury said at least P249 billion per year in incremental revenues must be raised.
Estimated to generate an annual average of P349.3 billion in revenues, the proposed fiscal consolidation plan will not only help the government accomplish this, but it will also help the country reduce its debt as a share of its economy from the projected 60.7 percent this year to 55.4 percent in 2025. Without the reforms, the country’s debt-to-GDP ratio in 2025 is seen to reach 58.2 percent.