Finance Secretary Carlos Dominguez III has urged senators Wednesday to swiftly pass the Duterte administration’s remaining economic reform measures which aim to attract more foreign direct investments, deepen the capital markets and further make the tax system “simpler, fairer and more efficient.”
This will “help guarantee the Philippines’ strong economic rebound” after the pandemic tapers down, he said.
In a 2022 budget briefing by the Development Budget Coordination Committee (DBCC) by the Senate finance committee Wednesday, Dominguez pushed for the approval of the pending amendatory bills to the Foreign Investments Act, Public Service Act, as well as the Real Property Valuation Reform Act and the Passive Income and Financial Intermediary Taxation Act, which are the remaining packages 3 and 4, respectively, of the Duterte administration’s Comprehensive Tax Reform Program.
He said these legislative measures will help achieve a “strong economic rebound” from the pandemic, along with the congressional passage of the Capital Market Development Act of 2021.
A measure endorsed earlier by Dominguez’s office and the Malacanang, the proposed amendments to the Retail Trade Liberalization Act has already been passed on third and final reading by both the Senate and the House of Representatives, and is pending in the bicameral conference committee.
The Senate finance committee chaired by Senator Juan Edgardo Angara began its deliberations on the proposed P5.024-trilllion national budget for 2022 with a budget briefing by the DBCC, of which Dominguez is a member.
Dominguez said the government will maintain the spending for the “Build, Build, Build” infrastructure program at above 5 percent of gross domestic product (GDP) to generate multiplier effects for the economy, such as creating more jobs and business opportunities.
The government will also invest heavily in the country’s young, talented workforce, he added.
The government will step up its vaccination drive, continue building up the public health care system and improve its tracking, tracing and treatment methods, Dominguez also said.
From 2022 onwards, Dominguez told senators the government expects the budget deficit to get narrower as revenue collections exceed the growth in expenditures; and the public borrowings, which remain within sustainable levels, to go down significantly starting in 2023.
However, he stressed that to maintain these reasonable debt and deficit levels, the government must continue to exercise fiscal responsibility.
Dominguez said the GDP’s expansion by 11.8 percent in the second quarter underscores the strong capacity of the economy to return to the path of rapid expansion, as reflected in higher revenue collections.
In the first seven months of this year, total revenue collections reached P1.7 trillion, up 4 percent from 2020, while tax collections grew 10 percent to P1.6 trillion.
The deficit, however, widened to P837 billion from January to July, which is 20 percent more than last year’s level, owing to the higher public health bill, Dominguez said.
The government resorted to borrowing from domestic and external sources with better interest rates and terms to cover the budget deficit, he added.
In the first half of 2021, the country’s gross borrowings amounted to P1.9 trillion, of which P1.6 trillion came from domestic sources, while the remaining P285 billion came from external sources through global bond offerings and official development assistance.
The government’s external borrowings include around P60 billion contracted from multilateral partners for the procurement of coronavirus disease 2019 (COVID-19) vaccines, Dominguez said.
He added that with the passage of a number of tax-related reforms like the Tax Reform for Acceleration and Inclusion Act, the imposition of new “sin” taxes, implementing the Tax Amnesty Act, improving tax administration, and collecting higher dividend remittances from government-owned and controlled corporations (GOCCs), the government was able to collect P347 billion more revenues from 2018 to 2020, and raise the revenue effort to 15.9 percent of GDP, with a two-decade high of 16.1 percent in 2019, from an average of 14 percent of GDP in the previous administration.
The government was also able to collect P317.5 billion in dividend contributions from GOCCs, which is almost double the collection level of the past administration, as well as increase infrastructure spending to 5.4 percent of GDP in 2019, from 2.9 percent in 2015, while maintaining it at 4.8 percent in 2020 despite the pandemic.
With improving collections mainly through the Duterte administration’s digitalization initiatives, Dominguez said revenues are expected to return to their pre-pandemic revenue levels in 2022.
He said the Department of Finance (DOF) projects the government to collect P3.3 trillion next year, equivalent to 15 percent of GDP, and 14 percent higher than the 2021 revenue collection program of P2.9 trillion (14.5 percent of GDP).
The DOF expects tax collection to reach P3.1 trillion next year, equivalent to 14.2 percent of GDP, and significantly higher than the programmed P2.7 trillion for 2021 (13.7 percent of GDP).
Dominguez said revenues will continue to grow from 2022 onwards, reaching P4 trillion in 2024, while tax collection will be on an upward trend starting next year, reaching P3.83 trillion by 2024.
The DOF estimates the budget deficit to decrease to 7.5 percent of GDP next year, from the 9.3 percent of GDP projected for 2021.
Dominguez said the medium-term fiscal program will follow a declining-deficit path so that by 2024, the deficit-to-GDP ratio will go down to 4.9 percent.
Total gross borrowings for 2022, meanwhile, are programmed to decline to P2.5 trillion from about P3 trillion expected this year.
Dominguez said while the country incurred additional debt to meet the health emergency spawned by COVID-19, public borrowings remain well within sustainable levels.
The national government’s debt-to-GDP ratio is projected to slightly increase to 60 percent in 2022 from the programmed 59 percent ratio in 2021, but is projected to start dropping from 2023 onwards.
Dominguez pointed out the increase in the national government’s debt level is only temporary.
Because of the higher spending to support both health and economic requirements, the pandemic resulted in the global trend of higher government debt-to-GDP ratios last year, he said.
“What sets the Philippines apart, however, is that we entered 2020 with a historic low debt-to-GDP ratio of 39.6 percent. This means that we could better absorb additional borrowings than other countries whose debt ratios were already at 60 percent before the pandemic,” he said.
“Hence, the 15-percentage point increase in the Philippines’ debt-to-GDP ratio in 2020 was still within the prescribed bounds of fiscal viability and the experience of the Philippines’ neighbors and rating peers globally,” he added.
Dominguez said more of the country’s fiscal resources are being directed towards productive spending rather than debt servicing, with the ratio of debt interest payment to expenditure dropping from 13.9 percent in 2015 to 9 percent in 2020. – Ruelle Castro
