Finance Department tagged for debt burden blame game
THE Department of Finance (DOF) said national government debt would have reached 15.4 trillion pesos this year – more than 2.2 trillion pesos – if the Duterte administration had given in to Covid-19 stimulus bills. 19 proposed by legislators and other “income erosion”. prompting an angry retort from a congressional leader.
Chief Finance Economist and former undersecretary Gil Beltran said the government opposes the passage of several stimulus bills because they would further increase the deficit and debt.
The chairman of the House Ways and Means Committee slammed his “aimless finger pointing.”
Debt-to-GDP ratio and deficit wouldn’t be that big, as bigger stimulus bills may even have cushioned the blow of the Covid-19 pandemic on the economy, says Albay Representative Joey Sarte Salceda.
“Every comment the DOF brings to the House Tax Committee is listened to, and if we don’t adopt their recommendation, we at least try to compromise. So hopefully we can avoid pointing fingers aimlessly. The challenge now is to get over the debt, and we have to work together,” Salceda added.
“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 that we funded and what we didn’t,” Salceda said.
“Secondly, the figure counts proposals of a very similar nature, so I think a double counting may have been done. The only major proposal [the proposed Bayanihan to Arise as One Act] was 1.4 trillion pesos including 800 billion pesos of net loans [assets] no running expenses [outflow]. Obviously an exaggeration at best,” he added.
According to Salceda, it is not fair to lump all the spending bills together as if Congress passed them all without deliberation.
“But assuming that no double counting took place, and indeed all the separate provisions of all the proposals amounted to some 2.2 trillion pesos, the question to be asked is: GDP would it have collapsed as much as it did if we had acted with a bigger, more comprehensive recovery plan?Remember, we have shrunk more than anyone else in 2020. And as the economy declines, revenue collection is also declining, so the debt to GDP and deficit probably wouldn’t have been as large as just adding up the cost of the proposed stimulus,” he said.
“Let’s not forget,” Salceda added, “the Ways and Means Committee regularly removes tax exemptions and additional tax incentives in proposed bills, and instead aligns them with the tax code. The Committee on appropriations, of which I am vice president, also regularly removes special appropriations from negative bills.
Salceda also reminded Beltran that Congress has partnered with the DOF on the entire tax reform agenda as well as the Duterte administration’s economic stimulus package.
Despite objections from many other stakeholders, Beltran said the DOF was working closely with lawmakers to limit the cost of interventions under the Bayanihan to one-act recovery to 140 billion pesos, as they considered the impact of additional spending on government borrowing.
“The government failed to support multiple stimulus bills, each proposing hundreds of billions in additional appropriations, precisely because we understood this would result in further deficit and debt increases,” Beltran said. in a press release.
“As we have said over the past few years, the government has always exercised fiscal prudence in response to the Covid-19 pandemic. We spent what we had to, but no more than we could afford. In fact, if we had accepted the pressure to spend more, our debt would have increased by 2.2 trillion pula and would have reached 15.4 trillion pula,” he added.
Among the invoices included in the DOF calculation were the following:
■ Proposed Value Added Tax (VAT) exemptions for petroleum, liquefied petroleum gas (LPG), electricity and other commodities and removal 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 grants, such as those proposed by Representatives Jose Ma. Clemente Salceda, Stella Luz Quimbo, Sharon Garin, Michael Edgar Aglipay, De Jesus, Guya, and Dagooc, and Senator Imee Marcos;
■Proposal to exclude 13th month salary, 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 government departments or entities proposed by various legislators.
To address the impact of Covid-19 in a “strategic and cost-effective manner”, Beltran said it secured additional funding from multilateral lenders to provide vaccine supply to the target population.
“The accelerated vaccination program, along with the move to the alert level system with granular lockdowns and increased public transport capacity, has allowed us to aggressively reopen the economy and restore jobs,” he said. he declares.
Apart from this, the DOF said that “sustainable fiscal economic stimulus programs have been enacted, including the Financial Institutions Strategic Transfer (FIST) Act, which helps banks extend credit to more sectors in allowing them to offload non-performing assets and non-performing loans to FIST. companies; and the Business Recovery and Tax Incentives Act (CREATE), which balanced a reduction in the corporate income tax (IRS) rate with the streamlining of tax incentives.
At the end of April, the stock of national government debt reached a new record high of 12.76 trillion pula, just two months before President Duterte left office.
The national government’s debt-to-GDP ratio in the first quarter of the year hit a 17-year high of 63.5%, above the 60% threshold recommended internationally 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% in 2005 under the Arroyo administration.
Finance Secretary Carlos G. Dominguez III has since said the current level of debt remains “sustainable” as the country needs to increase borrowing for Covid-19-related spending amid weaker revenue collection during the pandemic.
According to Salceda, it doesn’t matter how much a country borrows, and “what matters is how much it borrows compared to how much it earns”.
“What should matter is whether our debt is growing faster than the size of our economy. Because if we significantly outpace debt growth, it means we are spending our borrowings well and can repay well. our debts,” he added.
Highlighting the Philippines’ debt-to-GDP ratio of 61%, Salceda said, “It’s high, but not too high, especially given our recent GDP growth rate.”
“PGMA [former president Gloria Macapagal-Arroyo] spent his entire first term with steadily rising debt levels above 60%, which prompted us to undertake the RVAT reforms which, in turn, saved us from the fiscal crisis in time for the PNOY [former president Benigno Aquino III] benefit from expanded fiscal space,” he said.
Salceda, however, said the country’s debt-to-GDP level is expected to decrease every year from 2023.
“And the rating agencies have suggested that as long as our fiscal conditions don’t deteriorate, we should be fine. So as long as we can keep that level down and create enough fiscal space for surprise events, we wouldn’t be in big trouble,” he said.
“My own view is, let’s create the additional fiscal space – my estimate is around 326 billion pesos per year, eventually – so that we can continue to finance BBB [Build, Build, Build]university hospital [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 economics team to figure this out,” Salceda added.
Proposals for the next government
The DOF recently proposed that the next administration implement a set of fiscal measures expected to generate a total average of almost 350 billion pesos per year from 2023 to 2027 to help the country overcome its debt at a faster rate.
The proposed three-pronged fiscal consolidation and resource mobilization plan includes the imposition of several taxes, the postponement for 3 years of the second tranche of personal income tax rate reductions, the widening of the base for value added tax (VAT) and the abolition of VAT. exemptions, except for education, agricultural products, health, financial sector and raw food, among others.
To prevent the government from using borrowing to pay off the 3.2 trillion pesos of additional debt incurred during the Covid-19 pandemic, the Treasury Office said that at least 249 billion pesos per year of additional revenue must be lifted.
Estimated to generate an annual average of 349.3 billion pesos in revenue, the proposed fiscal consolidation plan will not only help the government achieve this, but it will also help the country reduce its debt as a share of its economy compared to to the 60.7% projected this year. to 55.4% in 2025. Without the reforms, the country’s debt-to-GDP ratio in 2025 is expected to reach 58.2%.