Challenge of sustainability and inclusive growth

The 2018 budget reflects this administration’s expansionist fiscal strategy, allowing more spending on priority expenditures such as infrastructure and social services. The total national budget amounting to P3.767 trillion is 12.4 percent higher than this year’s budget.

While the 2018 budget may help propel the economy and ease poverty, we still need to be prudent in our spending to avoid waste of resources because of endemic corruption and red tape. The issues concerning the slow procurement process and weak absorptive capacity of agencies are major stumbling blocks of development. A Congressional Policy and Budget Research Development (CPBRD) study published last September showed that from 2011 to 2016, the annual unused appropriations increased from P238.9 billion to P596.7 billion. The biggest challenge is how to promote long-term fiscal sustainability and ensure inclusive growth for areas outside Metro Manila

Consider the “unprecedented funding” of large budget ticket items:

Nationwide subsidy for public tertiary education and technical vocational education. The allocation of P40 billion to implement universal access to quality tertiary education is one of the biggest education subsidies. A few months ago, our economic managers warned that only 12 percent of poor students make it to state universities and colleges, and there is great danger of subsidizing the rich.

Massive investment for infrastructure. The budget for infrastructure has increased to P1.09 trillion, or 6.3 percent of the gross domestic product (GDP).

While we recognize that infrastructure spending can create jobs and attract more investments, it is noteworthy
that the government has not addressed the problem of corruption and bureaucratic procedures. The weak “internal controls” in government agencies and the presence of unscrupulous officials are still rampant. The Investment Climate statement of 2017 cited corruption in the Philippines as one of the disincentives to investors. Moreover, we have yet to see this administration’s gains in improving the absorptive capacity of agencies, especially the Departments of Public Works and Highways and of Transportation. A recent CPBRD study pegged the total unused appropriations of the two departments last year at P144.5 billion and P30.8 billion, respectively.

Compensation adjustment for uniformed personnel from the Miscellaneous Personnel Benefit Fund. The increase in base pay of uniformed personnel will entail P64 billion. This may lead to a bigger clamor from the civilian sector to increase salaries in the next few years.

In order to finance the 2018 budget, the government is targeting the collection of P2.84 trillion through the imposition of new taxes. This amount is estimated to reach 16.3 percent of GDP. But Department of Budget and Management data indicate that the revenue-to-GDP ratio has not
exceeded 15.8 percent since 2010.

Statistics from the Bureau of Treasury show that the budget deficit has reached P234.9 billion for the period January-October 2017, which is still below the total programmed deficit of P482 billion for the year. The government has pegged fiscal deficit for the next five years to be within
3 percent of GDP.

The new revenue measure, once approved into law, is expected to generate P130 billion in additional revenues to support the government’s flagship programs such as the “build, build, build” program. Unfortunately, if the tax administration system is not strengthened to assess and collect the right taxes, no tax reform can be effective.

Legislating new tax measures is easier than plugging loopholes in the system and reforming the culture of corruption in tax collection agencies. It took 20 years for the tax system to be upgraded, but it might take a longer period to muster the political will to make the entire government more accountable and transparent.

While the effects of the burden of higher “consumer taxes” might be felt directly in the next few months, the administration must work double-time to justify increasing or imposing new taxes, especially those with inflationary effects to consumer goods, before embarking on legislating more tax measures. The Tax Reform for Acceleration and Inclusion or TRAIN is replete with tax administration and mitigating measures that can serve as a platform for profound reforms in tax collection and budget spending.

Dindo Manhit is founder and managing director of Stratbase Group.