Bayanihan 3: Beneficial or burdensome?

Special Report: (Conclusion)

MANILA, Philippines — In a budget hearing on Sept. 9, Senate Minority Leader Franklin Drilon said the economic team should just exceed its debt and deficit ceilings, similar to what other emerging markets are doing, to widen financial support during the pandemic.

Finance Secretary Carlos Dominguez III rejected the proposal. He said he wants the Philippines to tread deficit spending with caution. For him, resources should be conserved in the event that the health crisis drags on with the mutation of new variants.

Dominguez stood by the government’s target of sustaining a fiscal deficit of P1.85 trillion or 9.3 percent of the economy this year, as well as narrowing that balance to 7.5 percent in 2022, dropping to 5.9 percent in 2023, and 4.9 percent in 2024.

Jose Enrique Africa, executive director of think tank IBON Foundation, said the government could explore new measures to raise additional revenues to fund Bayanihan 3. He told policymakers to study House Bill (HB) 10253 that seeks to slap a wealth tax on individuals with net assets above P1 billion.

Under HB 10253, Filipinos would have to pay a tax of one percent for wealth above P1 billion; two percent for wealth over P2 billion; and three percent for wealth beyond P3 billion. Nearly P237 billion per year can be generated just by taxing the 50 richest Filipinos, according to IBON.

Dominguez, for his part, vowed to examine the provisions of HB 10253, but warned a wealth tax may drive investors to move their capital abroad.

De La Salle University economics professor Maria Ella Oplas laid out an alternative in granting P2,000 in ayuda to each Filipino: Instead of distributing cash, workers can be provided with tax holidays amounting to the proposed subsidy.

Oplas said the tax break addresses the government’s issues with Bayanihan 3 by increasing the disposable income of Filipinos without requiring P216 billion in capital, while revenue losses could be recouped now that industries are reopening with the lifting of lockdowns.

“Although, this will cost the government revenues, it will have the same effect—consumption as giving away P2,000. If you open the economy, there is little pressure now for the government to source revenue,” Oplas told The STAR.

Among ASEAN-6 nations, the Philippines ranks second to the lowest on COVID-19 spending as a percentage of gross domestic product (GDP). Based on records from the Asian Development Bank (ADB), the country has spent a total of $30.71 billion or 8.7 percent of GDP for COVID-19 measures as of Aug. 30.

For comparison, COVID-19 spending in Malaysia has amounted to 43.5 percent of GDP ($143.3 billion), ahead of Singapore’s 30.52 percent ($101.07 billion), Thailand’s 20.88 percent ($102.09 billion), Indonesia’s 11.35 percent ($115.33 billion) and Vietnam’s 7.92 percent ($26.96 billion).

As of Sept. 5, the Philippine government has borrowed $22.51 billion, about P1.13 trillion, in external loans and grants from multilateral lenders like the World Bank and ADB to finance its pandemic interventions.

In spite of amassing that much foreign debt, economists warned against tightening too quickly on spending to the point that recovery for all will be missed.

In a policy paper, the International Monetary Fund (IMF) said governments need to rebuild their fiscal reserves in the medium term to slash their budget deficits and debt pile incurred during the pandemic. The IMF, however, also said that tightening early may cut efforts to create jobs for the purpose of reducing poverty.

Based on the Labor Force Survey, the unemployment rate in July slipped to a pandemic low of 6.9 percent. However, this translates to at least 3.07 million jobless Filipinos, 680,000 more than the 2.39 million in January 2020, prior to the contagion.

With this, Oplas said spending for stimulus packages like the Bayanihan 3 should be sustained before the government considers saving up on resources as championed by state economists or trimming COVID-19 items as laid out by the IMF.

Oplas said spending should only be relaxed once GDP growth is sustained for multiple quarters, inflation is brought down within targets, and the jobless rate is cut to pre-pandemic levels.

The economy endured 15 consecutive months of decline before growing by 11.8 percent in the second quarter. Inflation has averaged 4.4 percent as of August, exceeding the target range of two to four percent for the year. If these numbers indicate anything, economists say it is the exigency for additional stimulus.