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Economy

Diokno sees no need for spending cuts

BANGKO SENTRAL NG PILIPINAS GOVERNOR BENJAMIN E. DIOKNO — PHILIPPINE STAR/ GEREMY PINTOLO

THE INCOMING Marcos administration will not reduce government spending to address the ballooning budget deficit, Finance chief-designate and Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said.

“There should be no cut in our expenditure plan. I think we should really focus on raising enough taxes. I’m confident that because of the tax system that the Duterte administration will leave… we will be able to raise enough taxes to ensure we will meet our deficit targets,” he told ABS-CBN News Channel on Monday.

Mr. Diokno, who was picked by President-elect Ferdinand R. Marcos, Jr. to head the Finance department, said they will stick to the plan to bring down the government’s budget deficit to 3% of gross domestic product (GDP) by 2028.

For this year, the budget deficit ceiling is set at P1.65 trillion, which is equivalent to 7.7% of GDP. Economic managers set the budget gap ceiling at 6% of GDP for 2023, 5.1% for 2024 and 4.1% for 2025.

Asked if he will support proposals to impose new taxes, Mr. Diokno said the recent tax reforms would provide the next administration with enough room to generate enough revenues.

The Bureau of the Treasury earlier estimated the government needs to raise P249 billion every year in incremental revenues to avoid new borrowings to pay the P3.2-trillion additional debt incurred during the coronavirus disease 2019 (COVID-19) pandemic.

Finance Secretary Carlos G. Dominiguez III has proposed a fiscal consolidation plan that involves imposing new tax measures, repealing some tax exemptions, and deferring the personal income tax reductions.

Mr. Dominguez has said the government cannot cover the existing debt by borrowing more or reducing spending every year.

The National Government’s outstanding debt stood at a record-high P12.76 trillion at the end of April.

Meanwhile, Department of Finance (DoF) Chief Economist Gil S. Beltran said the country’s outstanding debt would have ballooned to over P15 trillion this year, if not for the government exercising fiscal prudence.

“We spent what we had to, but not more than what we could afford. In fact, had we acquiesced to pressure for us to spend more, our debt would have increased by P2.2 trillion more and reached P15.4 trillion,” Mr. Beltran said in a statement.

During the pandemic, Congress passed Republic Act (RA) No. 11469 or the Bayanihan to Heal as One Act and RA 11494 or the Bayanihan to Recover as One Act.

“Aware of the effects of additional spending on our borrowings, the DoF worked closely with legislators to limit the interventions under Bayanihan II to P140 billion, despite the objections of many other stakeholders,” Mr. Beltran said.

The DoF cited a report by its Domestic Finance Group (DFG) showing that proposed COVID-19 stimulus bills and other revenue eroding measures would have led to additional spending amounting to at least P2.2 trillion if they were passed by Congress.

Economists, however, said the government should have ramped up spending to boost the Philippines’ recovery from the pandemic.

“I personally thought that the government should have come out and have done a little more,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said. “But, credit to the government because they did what has to be done considering the lack of resources.”

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail that increased spending during the pandemic could have helped jumpstart economic activity.

“Additional stimulus during the height of COVID may have indeed bloated the overall debt levels of the country… However, such deployment may have jumpstarted economic activity, assured a more effective and early response to the crisis that could have ultimately [saved] the economy from falling into a deep recession,” he said.

“The improved health of the country could have in turn generated revenue streams that could have offset deficits and debt levels.”

Mr. Mapa stressed that the importance of measuring debt not solely on its overall level, but also against the economy’s gross domestic product (GDP).

“A substantial outlay early on in the pandemic may have pushed the debt levels to elevated levels, but it could have also helped revive the economy sooner, restore revenue streams and lead to narrower deficits and a more vibrant economy that would eventually translate to lower debt-to-GDP ratios.”

The Philippine economy contracted by 9.6% in 2020, but rebounded with a 5.7% growth in 2021.

Economic managers are targeting 7-8% GDP growth this year. — Keisha B. Ta-asan and Tobias Jared Tomas

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