Govt committed to deficit targets
The government is not planning to embark on a spending blowout amid uncertainties over pending tax reform proposals, economic managers said on Tuesday.
“The deficit is cast in stone. We will not prejudice the entire economy by exceeding 3 percent or around that area,” Finance Secretary Carlos Dominguez 3rd said during an Economic Journalists Association of the Philippines (EJAP) forum.
Dominguez issued the statement on the back of rising concerns that Congress might approve watered-down versions of the remaining Comprehensive Tax Reform Program (CTRP) packages following calls to suspend the Tax Reform for Acceleration and Inclusion (Train) law.
Train, which was passed in December and implemented at the beginning of 2018, has been blamed for above-target inflation and substantial increases in the cost of living. Part of Package 1 of the CTRP, the law increased taxes on fuel and vehicle sales, among others, in exchange for lower personal income tax rates.
Still to be approved by Congress are the following:
• Package 1B, which covers a proposed tax amnesty, bank secrecy laws, and Motor Vehicle Users Charge adjustments;
• Package 2 that calls for lower corporate income taxes and the streamlining of fiscal incentives;
• Package 2 Plus, which proposes to raise the excise tax on tobacco and alcohol products and increase the government’s share from mining;
• Package 3, which institutes reforms in property taxation to make the valuation system more equitable, efficient, and transparent; and
• Package 4, which proposes to rationalize capital income taxation to address multiple rates and different tax
treatments and exemptions on capital income and other financial instruments.
Package 2, in particular, has found little support in the Senate. Economic managers have been pushing for the law’s approval before the year ends, looking for a revenue boost that will support the government’s “Build Build Build” infrastructure program.
On Sunday, the Finance department said all CTRP packages had been submitted to the House of
Representatives, “from where all taxation measures emanate”, and expressed hope that all would be approved “before the end of 2018, especially because lawmakers would, at the onset of 2019, be already preoccupied with their respective campaigns for next year’s midterm elections.”
Budget Secretary Benjamin Diokno, who has raised concerns over the budgetary impact of a Supreme Court decision raising the tax share of local governments, also stressed during the forum that economic managers would “not allow the budget deficit to increase to about 4 percent” of gross domestic product (GDP).
He reiterated a proposal to implement a legal provision that reduces internal revenue allotments (IRA) in times of unmanageable budget deficits.
“There is a provision in the LGC (Local Government Code) that in the event of an unmanageable public sector deficit, the President has the option to reduce IRA from 40 to 30 percent. So we’ll use that,” he explained.
Economic managers have also warned that the costs of a proposed shift to a federal system of government could raise the budget deficit to as much as 6.7 percent of GDP, earning the ire of federalism advocates but also the support of business groups.
At the moment, the government is targeting budget deficits of P523.682 billion or 3 percent of GDP for 2018, P624.370 billion or 3.2 percent for 2019 and 3 percent for 2020-2022. Last year, the government’s budget deficit of P350.6 billion was equivalent to 2.2 percent of GDP.
The 2018 shortfall remains well below target at P279.4 billion as of end-July.
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