In an official statement released in the internet newsletter of his economic think-tank group, IDEA, Dr. Cayetano Paderanga Jr. said that to raise its sustainable growth, the Philippines needs to close its fiscal gap without sacrificing essential physical and social infrastructure.
His suggestions come in the wake of reports that only halfway through the year, the government has incurred over P130 billion in deficit spending which is very close to its P145-billion deficit target for the whole year.
This has made foreign lenders, independent economists and investors nervous over the administration’s ability to spend closer to as much as it earns every year.
The ballooning deficit is one of the gaping weaknesses in the performance of the Arroyo government.
Paderanga suggests that the government adopt twin measures in the tax collection and spending arenas. In the spending side, he says that the government must cut down on its spending on personal services which now account for 70 centavos out of every peso spent by government.
Only 20 centavos out of the same peso go to maintenance cost and operational expenses while a measly sum of 10 centavos go to capital expenditures.
Personal expenses means salaries and wages, operational and maintenance refer to the cost of running government, while capital expenditures are those spent for new projects like schools, bridges and the extension of credit to farmers.
"Agencies may have to be closed and the government taken out of some activities where its functions are unclear," Paderanga insists.
To reverse what he observes as a trend of deteriorating tax collections, the government must improve tax administration by collecting a few core taxes that are easy to understand and accept, and abolish many complicated taxes.
The former NEDA chief acknowledges that the twin moves need a strong political will to implement. Trimming the fat off the bureaucracy has been attempted by several former Presidents but nobody had seriously pursued it.
"Both thrusts will require tremendous effort and commitment. But only then can the fiscal area be conducive to sustainable rapid growth," the doctor of economics concludes. – Abe P. Belena, Philexport News and Features