Duterte: More public spending, improved tax system to spur growth

MANILA, Philippines -- The government has set a higher fiscal deficit for next year as it vowed to hike public spending in what President Duterte described as a “budget for the people and by the people.” 

 

In his budget message, Duterte said the budget shortfall for 2017 would reach P478.1 billion, equivalent to three percent of the gross domestic product (GDP). The GDP is the sum total of all goods and services produced within an economy in a given period. 

 

A fiscal deficit happens when a government spends more than it earns.

 

“As the needs of our people increase, public spending must likewise expand to meet such demands,” Duterte said.

 

“Governance and development will be for naught if we do not take a human approach. I add: The budget is useless if the Filipino is not at its center,” he added.

 

Duterte said that focusing on the needs of Filipinos would make next year’s P3.35-trillion budget more than just a “collection of figures and provisions” but also “an embodiment of our people’s clamor for real change and a compassionate government.”

 

Next year’s budget is 11.6 percent higher than the outlay for 2016 and represents 21 percent of the projected GDP.

 

Despite the spending hike, Duterte said the proposed expenditure ceiling and fiscal deficit target for the medium term are “reasonable and fiscally sound.”

 

“The new deficit target for next year to 2022 allows us to increase spending on infrastructure, rural development and social services,” the president said.

 

The Aquino administration was hit by critics, including then Vice President Jejomar Binay, for underspending, or falling short of government spending caps.

Duterte said the government can collect enough taxes because the economy is expected to continue growing.

 

He said the country’s GDP is seen to expand by 6.5 percent to 7.5 percent next year because of the sustained growth of the services and industry sectors and the expected rebound of agriculture sector.

 

“Our plan to pump-prime the economy through increased spending on infrastructure will push GDP growth to new heights next year and throughout our term,” the president said.

 

A higher fiscal deficit would put more pressure on the government to borrow money to fund its programs. Duterte, however, claimed that the debts to be incurred would “produce results.”

 

He said infrastructure spending would be increased to six to seven percent of the GDP to build new roads, railways, classrooms and farm facilities.

 

“These added debts will not endanger our stable financial position. With strong growth, we will continue to outgrow our debt burden,” Duterte said.

 

The government is expected to generate P2.48 trillion in revenues or about 10 percent more than the target for this year and equivalent to 15.6 percent of the GDP.

 

Tax revenues will comprise about 93 percent of the total revenue target. Tax effort, the ratio of tax revenues to the GDP, is expected to improve to 14.5 percent in 2017 from 14.1 percent this year.

Duterte, however, cited the need to fix what he called the “twin problem” of the tax regime.

 

“While our tax rates are among the highest in the region, our tax collection effort fares dismally compared to other countries because it is more complicated to administer,” the president said.

 

He also noted that the government’s revenues are sourced mainly from income taxes from salaried employees and corporations, import duties, value-added taxes on consumption of goods and services and sin taxes from cigarettes and alcohol.

 

“Unfortunately, these aren’t enough because of tax evasion, smuggling and other leakages,” Duterte said.

 

The Duterte administration is set to propose to Congress a package of reform measures to raise additional revenues without burdening the poor.

 

These measures include the lowering of income tax rates for individuals and corporations from 32 percent and 30 percent, respectively to 25 percent, expanding the value-added tax base, indexing oil excise taxes to inflation, and rationalizing fiscal incentives.  

 

“These tax measures will be complemented by administrative measures to curb tax leakages such as the improvement of the systems and capacity of the Bureau of Internal Revenue and of Customs,” Duterte said.

 

The chief executive also vowed to push for measures that would strengthen the fight against tax evasion such as the relaxing of the Bank Secrecy Law and amending the Anti-Money Laundering Act to make tax evasion a predicate crime to money laundering.

 

The president said the tax reform package would raise total revenue effort to about 17 percent of the GDP in 2018 and 18 percent by 2022.

 

Total borrowings is projected to hit P631.3 billion next year. The amount will be used to finance the P478.1 billion deficit, settle the P89.3 billion in maturing debt obligations, contribute P45 billion to the Bond Sinking Fund, and maintain enough cushion of cash in the Treasury.

 

The borrowings for 2017 will be 9.2 percent lower than this year’s projected borrowings because of lower refinancing requirements.

 

The national government’s outstanding debt is expected to drop to about 40.9 percent of GDP next year from 44.8 percent in 2015. The debt stock as a proportion of the economy is seen to fall below 40 percent of GDP by 2018 and approach near 35 percent of GDP by 2022.

 

“We will meet these if we improve revenue collections through a comprehensive tax reform, spend on the right priorities and keep fiscal risks in check to grow the economy,” Duterte said.

 

Duterte said the Philippines would also maintain a “heavy bias” for domestic borrowings while optimizing available congressional loans from development partners. The government would implement a borrowing mix of 80:20 in favor of domestic instruments for the next six years.