Fiscal balancing act

IN THE management of the government coffers, it is important that the left hand knows what the right hand is doing, and that each acts in coordination with the other.

We are, of course, talking about the state’s fiscal management scheme where, for the benefit of the country and its citizens, it is important that the government not only collects the revenues it needs, but also spends these in a timely and judicious manner. In that way, taxes will benefit the very same people from whom these were levied, in areas where these are most needed and, just as importantly, when these are needed.

In the Philippine setting, this balancing act is performed on one hand by the Department of Finance, which is in charge of raising money for the state through the Bureau of Internal Revenue and the Bureau of Customs. On the other hand is the Department of Budget and Management, which is responsible for disbursing funds to government instrumentalities for the benefit of the man and woman on the street. The left hand takes, the right hand gives out.

It is with regard to this coordination between either side of the fiscal system that the outgoing administration came up short.

President Aquino’s Department of Finance, led by Cesar Purisima, has undoubtedly done an excellent job in improving the government’s finances. And while BIR Commissioner Kim Henares has run controversial tax campaigns (which, however, failed to land a single tax evader in jail), it is difficult to argue with empirical evidence—revenue collections that have risen steadily over the last six years. Indeed, the Philippine government had the money, and had it in abundance, hence the attainment of the coveted and vaunted investment-grade rating from international debt watchers.

The problem was that the right hand of the fiscal equation—the DBM—would not, could not, and did not push the money out the other end fast enough. With bureaucratic red tape stalling meaningful private-sector participation in the public-private partnership program, the government failed to take up the spending slack. The result is what we have today: crumbling infrastructure, and public dissatisfaction that helped fuel the election of Rodrigo Duterte to the presidency.

A variation of this dysfunction between the economic policies of collecting money and spending it faces the incoming administration as well.

The good news is that the incoming finance secretary, Carlos Dominguez, will inherit a fiscal picture that is arguably the brightest in Philippine history. The bad news is that the appointees to head the BIR and the BOC are, from all indications, not Dominguez’s men. This stands in contrast with the situation of the outgoing finance secretary, Purisima, who has been able, for the most part, to keep a tight rein on the operations of both revenue agencies.

The other development worth watching closely is the appointment, once again, of economist Benjamin Diokno as budget secretary.

While the outgoing DBM chief, Florencio Abad, has had great difficulty pushing government money out to where it was needed, Diokno has vowed that no such thing will happen during his watch. He has the track record to back that vow. As President Joseph Estrada’s budget chief,

Diokno made sure to pump funds for the actor-turned-politician’s populist policies into government agencies—so much so that his strategy of “deficit spending” (that is, spending much more than what the country can afford, in the hope of boosting growth) alarmed the Philippines’ creditors, like the International Monetary Fund, the World Bank and other foreign lenders.

Thus, it is critical for Dominguez to take firm control of the BIR and BOC and remind their respective heads that their first responsibility is to the government, and not to the political patron(s) who suggested their names to Duterte.

It is equally critical for Diokno to curb his enthusiasm for correcting the shortcomings of the outgoing administration by spending much more than what revenue collection officials can put into the government coffers.

Perhaps, most importantly, it will be crucial for the incoming President, despite his seeming disinterest in esoteric economic policies, to make sure that each side of his administration’s fiscal house works in lockstep with the other.

At stake is not just the support of 16 million citizens who voted for him, but nothing less than the economic wellbeing of 100 million Filipinos.