Government revenues are fine but spending cut is needed

The Bureau of the Treasury (BTr) released the cash operations report for full year 2024 the other week. So annual data is now complete and comparable, here are some of the important results.

One, overall revenues reached P4.42 trillion in 2024, 15.6 percent higher than P3.82 trillion in 2023, good. GDP growth at nominal values in 2024 was 8.7 percent. Overall revenues in 2019 was P3.14 trillion, declined to P2.86 trillion in 2020 due to the horrible lockdown and closure of many tax-paying businesses and shops.

Two, tax revenues reached P3.80 trillion, 10.8 percent higher than P3.43 trillion in 2023. It was P2.83 trillion in 2019 or nearly P1 trillion increase in five years.

Three, domestic-based taxes kept rising especially income tax, VAT and sales tax, but excise tax kept declining from P317.7 billion in 2021 to P312.2 billion in 2022, P293.0 billion in 2023, data for 2024 not reported out yet.

Excise tax revenues from alcohol and sugar-sweetened beverages kept rising but taxes from tobacco kept declining. From P176.5 billion in 2021 to P160.3 billion in 2022, P134.9 billion in 2023, and flat level in 2024 at around P134 billion. Illicit and smuggled tobacco that pay zero excise tax and VAT and hence sold cheaply is the main culprit.

Four, non-tax revenues jumped big time, from P325.7 billion in 2022 to P394.8 billion in 2023 to P618.3 billion in 2024. These represent 21.2 percent growth in 2023 and 56.6 percent growth in 2024.

Five, remittances by government corporations contributed a big chunk of this big increase in non-tax revenues, from P91.6 billion in 2023 to P255.4 billion in 2024, a whooping 179 percent increase.

Finance Secretary Ralph Recto is largely responsible for this almost miraculous increase in non-tax revenues. He raised the mandatory remittances of government corporations from 50 percent to 75 percent, among other measures he implemented in his first year as finance secretary. Then there was upfront payment of P30 billion by New NAIA Infra Corp. (NNIC) led by SMC.

Six, income from Malampaya gas royalties kept declining, from P25.9 billion in 2022 to P17.8 billion in 2023, to only P10.7 billion in 2024. Declining volume of gas from the offshore Malampaya field plus lower global oil prices (Malampaya gas prices are pegged at Dubai crude oil prices) contributed to this.

Seven, BTr income significantly increased from P154.8 billion in 2022 to P227.6 billion in 2023 and P283.4 billion in 2024. The bulk of this income in 2024 came from dividend on shares of stocks at P138.5 billion, government share in PAGCOR income at P45.1 billion and income from BSF/SSF (bond sinking fund, securities stabilization fund) at P48.3 billion.

As a result of significant increase in revenues, the budget deficit was limited to P1.51 trillion or -5.7 percent of GDP. The deficit/GDP ratio has been declining from -7.6 percent in 2020, -8.6 percent in 2021, -7.3 percent in 2022, -6.2 percent in 2023, and -5.7 percent in 2024. The target of the economic team is to be back at around three to four percent of GDP by 2028.

The new CREATE MORE Law of 2024 (RA 12066) with implementing rules and regulations should be able to attract more investments and hence help broaden the tax base.

Three revenue and spending measures that the economic team has initiated recently that have become controversial are the following.

One, transfer of PhilHealth idle funds in 2024, P60 billion to the National Treasury. This case is now in the Supreme Court. This column has consistently argued that said transfer of excess funds is correct mainly on fiscal economics angle. That is P60 billion of avoided borrowings in 2024 which at an average six percent interest rate in 2024 (10-year government bonds) would mean P3.6 billion of avoided interest payment yearly plus principal amortization.

Two, zero government subsidy for PhilHealth in 2025. PhilHealth is not into “fiscal crisis” situation, its operating budget for 2025 (mainly from active members’ contribution) is P284 billion, which is P25 billion more than its 2024 budget and P118 billion more than its 2022 budget of P166 billion.

Three, huge increase in public works budget that reached P1 trillion in 2025, an election year.

The problem in our persistent annual budget deficit that requires big annual financing and borrowing lies in the expenditure side, not on the revenue side. When lockdown was imposed in 2020-2021, many new subsidies and freebies were invented. When the virus scare was gone and lockdown was lifted around mid-2022, most if not all of those subsidies were retained until today when they should have been discontinued and stopped.

Also, huge public works and transportation spending when we already have a dynamic public-private partnership (PPP) financing of big and important infrastructure, and huge annual budget for local governments under the Mandanas Ruling. I think DPWH can be abolished, all big national infra can be done via PPP and local infra can be done by local governments, provincial-city-municipal.

Other departments should be meaningfully devolved to local governments and their national offices should be shrunk if not abolished. We should aspire to significantly cut that P16 trillion plus outstanding public debt. Interest payment alone for our public debt in 2024 was P763 billion or average of P2.1 billion a day. But we need a different group of legislators and civil society leaders to push this.