DoF highlights H1 accomplishments
Credit to Author: BEN KRITZ, TMT| Date: Mon, 12 Aug 2019 17:27:25 +0000
Revenue, policy gains made in less-than-ideal conditions, but challenges remain
IN spite of a budget impasse which virtually halted progress toward the government’s objectives for the first six months of the year, the Department of Finance (DoF) was able to record some notable achievements, summary data released to the media last week revealed. But although public spending is now “firing on all cylinders,” as Finance Secretary Carlos Dominguez 3rd said, significant obstacles remain, and may dampen efforts to catch up to expectations for 2019 through the rest of the year.
In an interview on Friday, Dominguez detailed the extreme extent to which the delay in enacting the 2019 General Appropriations Act — the result of congressional resistance to the change to a cash-based, rather than obligation-based, budget system — slowed public spending: whereas the normal pace of spending under this year’s budget would have amounted to about P10 billion a day, the government was spending less than P1 billion a day until after the May 13 midterm elections.
The slow pace of government spending pulled gross domestic product (GDP) growth down to 5.6 percent and 5.5 percent in the first and second quarters, respectively, well below the government’s target range of 6.0 percent to 7.0 percent for the year.
Revenue, dividends higher in first half
While spending may have been paralyzed, government income in the form of taxes, customs duties and dividend collections from government-owned and -controlled corporations (GOCCs) improved across the board in the first half. Taxes collected by the Bureau of Internal Revenue (BIR) rose 11 percent year-on-year to reach P1.1 trillion, while the Bureau of Customs (BoC) improved its collection efforts by 8.0 percent to P303 billion.
Meanwhile, dividends remitted by 53 GOCCs reached P61.3 billion, the highest level ever recorded for a half-year period. Of that total, P15.6 billion was retained by the two government-owned banks, Land Bank (LandBank) of the Philippines and Development Bank of the Philippines, to boost their capital.
There are two conclusions that can be drawn from the first-half revenue performance. First, since some spending in the time-shortened 2019 budget obviously cannot be carried out by year-end, the government is likely to have at least a small surplus. This should reduce debt funding requirements moving forward, and offset some of next year’s proposed P4.1-trillion budget.
Second, the increase in bank capitalization, particularly at LandBank, is a potential trouble spot. The bank came under fire during President Rodrigo Durterte’s recent State of the Nation Address for diversifying from a purely agricultural focus to more commercial banking activities; adding capital may encourage the bank to expand those activities to prevent an accumulation of unused resources, which may be practical, but has already been deemed politically unacceptable.
Rice import liberalization
Rice imports, and the corresponding customs duties collected from them, have performed well above expectations since the full implementation of the Rice Tariffication Act in early March, the DoF said. Through July 15, the BoC had collected P6.5 billion, all of which is earmarked for the Rice Competitiveness Enhancement Fund (RCEF) to finance agriculture modernization.
As Dominguez explained, the only part of the import liberalization scheme that has not quite worked as designed has been the RCEF. An initial allocation of P5 billion was provided for the fund even before the Rice Tariffication Act was passed, but disbursement of the money — even though it has already been more than covered by import duties — has been slow. That is expected to improve rapidly with the change in leadership at the Department of Agriculture, but whether it does will not be known until the latter part of the year.
Tax reform
In terms of progress toward the government’s overarching Comprehensive Tax Reform Program (CTRP), the DoF noted one success and one pending bit of progress in the first half of the year. The clear success was the passage of RA 11346, or the “Tobacco Tax Law of 2019,” which significantly increases excise taxes on tobacco and vaping products. The extent of the progressive tax increase was less than what the DoF actually sought, but the signing of the law on July 25 at least got the ball rolling.
The one slightly worrisome pending objective is the passage of the second package of the CTRP, which has hung on disagreement with the bill’s rationalization and reduction of corporate fiscal incentives. Dominguez expressed confidence that this package would advance relatively quickly in the new Congress, and in fact has made it one of two broad priorities (the other being the timely passage of the 2020 budget) for the administration for the remainder of the year.
Second-half prospects
Taken altogether, the first-half accomplishments of the DoF and the broad objectives it has set out for the remainder of the year — budget and tax reform passage, maximized government spending, and continuous improvement in revenue collection — present a reassuring picture of a holistic, measured approach guided by carefully developed priorities. Whether that will be enough, however, to make up for the time lost to the budget impasse is doubtful; while the DoF leadership are confident in their ability to achieve results, they are circumspect in quantifying those in terms of indicators like GDP growth.
That may be to the country’s benefit. Since the guiding philosophy is to make sure that what is accomplished is substantial and complete, regardless if it meets original aspirations, more may actually be achieved than by focusing on specific targets, which may in any event still be missed.