DBCC cuts revenue, disbursement program

MANILA, Philippines — The inter-agency Development Budget Coordination Committee (DBCC) has slashed the government’s revenue and disbursement programs in the next two years due to lower gross domestic product (GDP) projections, as well as the expected passage of a bill which seeks the immediate reduction in corporate income taxes.

According to the revised medium-term fiscal program approved by the DBCC, as released by the Department of Budget and Management (DBM), government revenues are expected to reach P2.93 trillion in 2021, equivalent to 13.7 percent of GDP.

This is 12.1 percent up from the revised 2020 program of P2.61 trillion, and is projected to further increase by 11.7 percent to P3.27 trillion in 2022.

However, DBCC data showed the newly approved revenue program for 2021 and 2022 are lower than the previous targets of P3.85 trillion and P4.31 trillion, respectively, as announced in the committee’s Dec. 11, 2019 meeting.

The DBCC likewise projected the disbursement program to reach P4.2 trillion or 19.7 percent of the GDP in 2021, up by 0.7 percent from the revised 2020 expenditure program of P4.18 trillion, but down from the DBCC’s December 2019 estimate of P4.59 trillion.

For 2021, the disbursement program is seen to increase by 5.9 percent year-on-year to P4.45 trillion. However, this is lower than the previous DBCC-approved program of P5.12 trillion.

As a result of these changes, the country’s fiscal deficit is now seen to widen to P1.27 trillion or six percent of GDP in 2021, and P1.18 trillion or five percent of GDP in 2022.

These are both higher than the previous fiscal deficit ceiling set by economic managers, which was at 3.2 percent for 2021 and 2022.

Sought for comment, Finance Undersecretary Gil Beltran said the DBCC revised the fiscal program due to lower GDP projections in the medium term.

“Lower GDP levels compared with the baseline set last December 2019 by the DBCC,” Beltran told The STAR.

According to the DBCC, the projected nominal GDP for 2021 was reduced by 7.4 percent to P21.32 trillion from the Deember 2019 baseline of P23.02 trillion. Nominal GDP is also projected to reach P23.63 trillion by 2022, down from the previous DBCC estimate of P25.34 trillion.

Beltran said the downward revision of the revenue program could also be partly attributed to the expected passage of the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), an upgraded version of the Corporate Income Tax and Incentives Rationalization Act (CITIRA).

The CREATE bill proposes the immediate lowering of the corporate income tax from 30 percent to 25 percent, unlike CITIRA, which sought a staggered reduction over 10 years until the rate reaches 20 percent.

Meanwhile, Budget Undersecretary Laura Pascua said the disbursement program for the next two years were slashed “because of the very large reduction in revenues and rise of deficit.”

“The DBCC decided to gradually reduce the size of the deficit for sustainability,” Pascua said.

Finance Secretary Carlos Dominguez, for his part, said the fiscal program for 2021 and 2022 also follows a “realistic” trajectory of recovery following a slump in 2020 brought about by the coronavirus threat.

“Macroeconomic assumptions underlying revenue program for 2020-- GDP, imports, oil prices--are all lower because of the pandemic. GDP growth forecast is negative for 2020. All these conspire to lower the taxbase of revenues,” Dominguez said.

“The medium term outlook is more positive than for 2020 though. Overall fiscal program for 2021 to 2022 follows a realistic trajectory of recovery that allows for growth while maintaining fiscal discipline,” he said.

The Philippine economy is projected to contract by two to 3.4 percent in 2020 due to the impact of the coronavirus disease 2019.

For 2020, fiscal deficit is also expected to reach P1.56 trillion or 8.1 percent of GDP, 2.8 percentage points up from the initial projection of 5.3 percent.