Next year’s budget must address urgent concerns
Pulse Asia’s September 2023 survey results show that inflation remains the topmost urgent national concern of Filipinos, consistent with September findings over the past two years. Inflation is followed by increasing the pay of workers and creating more jobs as the second and third top concerns, respectively.
At 6.4 percent, the Philippines has the highest 2023 average inflation rate among its peers. Year-to-date inflation in Thailand, Malaysia, Vietnam, and Indonesia are only 1.6, 2.8, 3.2, and 3.9 percent, respectively. The Philippines’ 2023 average unemployment rate, at 4.7 percent, is also relatively high compared to Thailand’s 1.2, Vietnam’s 2.1, and Malaysia’s 3.6 percent.
Areas of agreement. In the proposed 2024 national budget, P167.5 billion was allocated for boosting food and water security, and around P53.5 billion was earmarked for investments in infrastructure, such as farm-to-market roads, irrigation systems, and post-harvest facilities. Since food inflation is the main driver of overall inflation, improving the efficiency and productivity of the agricultural supply chain is essential.
The proposed budget also includes a 16.7 percent budget increase for the Department of Energy from P2.2 billion in 2023 to P2.6 billion in 2024. Additionally, P1.4 trillion was allocated for the “Build Better More” program. Investments in energy and infrastructure would help attract more investments which could generate more and better jobs for Filipinos.
Areas for improvement. One area of concern is the low budget allocated for agricultural research and development (R&D) and agricultural credit. Thailand’s R&D budget in 2023 is around $373 million while Vietnam’s is around $394 million. Meanwhile, the Philippines’ R&D budget is only around $185 million. Additionally, the Philippines only allocated P19.6 billion for agricultural credit in 2023 while Thailand and Vietnam allocated P45.7 billion and P67.6 billion, respectively. While the recently approved debt condonation on agrarian reform beneficiaries can improve access to credit, more needs to be done to ensure that all farmers have access to the financial resources they need to succeed. There should be more rigorous monitoring and supervision of funds to increase the absorptive capacity of the Department of Agriculture (DA). The DA only absorbed 78.1 percent of its budget in 2021 and only 76.3 percent in 2022. By closely tracking and managing funds through regular Legislative Executive Development Advisory Council meetings and involving pertinent oversight committees in both the Senate and House of Representatives, the DA can make better use of available resources, resulting in more efficient project implementation and greater positive impacts in their development efforts.
Several tax reforms were proposed to help fund government programs. Of these, we recommend the urgent passage of the Passive Income and Financial Intermediary Taxation (PIFITA) bill, the proposed value-added tax (VAT) on digital services, and the proposed excise tax on pre-mixed alcoholic beverages. These reforms are expected to generate a total of P25.5 billion in government revenue for 2024 alone.
Aside from raising more public funds, the PIFITA bill would also help make insurance products more affordable for Filipinos by reducing insurance taxes. The proposed VAT on digital services would also help level the playing field between local and foreign digital service providers, which would encourage the creation of more jobs.
Our policymakers should also reconsider the passage of the proposed excise tax on sweetened beverages and junk foods while prices remain elevated. While this is expected to generate P75.7 billion in revenue for 2024, it would worsen inflation and underemployment since salty foods such as canned goods and instant noodles are considered staples by many low to middle-income households.
The government must step up its efforts in improving tax collection efficiency, generating other sources of revenue such as the sale of select government assets, privatization of government-owned and -controlled corporations, and engaging in more public-private partnerships to fund its expenditures.
The government should also be very mindful of borrowing more funds as the share of the national budget spent on debt service is increasing. P1.9 trillion, or around 34 percent of the 2024 national budget will be allocated for paying our country’s debt. This percentage was much lower at 25.1 percent in 2022 and is programmed to be at 29.7 percent in 2023.
Conclusion. To effectively address the topmost urgent national concerns of Filipinos, the government must allocate more budget to projects and strategies that will address the supply side of inflation and those that will attract more investments that generate more and better jobs.
We hope that the points highlighted above can still be considered by the House and Senate panel members of the bicameral conference committee to make the 2024 national budget more responsive to the topmost urgent national concerns of Filipinos.
Gary B. Teves served as finance secretary under the Arroyo administration.
