THE proposed 2017 budget increases expenditure from P3.002 trillion (the 2016 budget) to P3.35 trillion. The increase, P348 billion, is substantial. Where will the money come from?
This is the hard part.
To make the problem more serious, the Department of Finance (DOF) has made proposals to the Senate ways and means committee to reduce income tax rates. DOF has quantified the foregone revenues from the reductions at P139 billion for 2017.
To offset the effect of direct tax reduction, DOF proposes to increase indirect taxation. This will be effected by expanding the value-added tax base, increasing the excise tax on fuel, and levying a tax of P5 per kilo on products containing sugar.
These indirect taxation items have not been quantified in total but are unlikely to offset the budget increases and the decrease in direct taxation.
We shall need to borrow more.
The 2017 budget includes P388 billion to service debts already incurred from previous administrations. A substantial amount, and further increases will irk the Freedom from Debt Coalition. I hope this body will join the national conversation because it would be helpful if its views are heard.
The Aquino administration did well in reducing the debt to gross domestic product (GDP) ratio. It was 74.5 percent in 2009 and is now under 50 percent. By international standards, the Philippines is relatively strong. In Europe, Greece reached 180 percent with the attendant problems of servicing its debts. It is in a hole which will require years of austerity before debt servicing becomes relatively manageable.
In the early days of the Duterte administration a picture is emerging. A key objective is to reduce the poverty rate from its current level of 26 percent to 17 percent by 2022. This is an ambitious target. If achieved, there will be 10 million less impoverished Filipinos than there are at present.
Successive administrations have not addressed poverty effectively. I believe that by focusing on regional variations, this administration will be more successful.
In 2000, our poverty rate was 33 percent and in the following 16 years it has only been reduced to 26 percent. In contrast, the United Nations Millennium Goal set in 2000 was to reduce poverty levels by 50 percent over the following 15 years. Many countries achieved this goal, but not the Philippines. If the Philippines had achieved the goal the poverty level would have been down to 16.5 percent in 2015.
President Estrada was elected in 1998 on the promise of poverty reduction. I wonder if historians will question the installation of Gloria Macapagal-Arroyo as president in January 2001 with no electoral promises at all (since she was not elected). In any case, she was unsuccessful in reducing poverty.
If President Duterte achieves the targeted poverty reduction, then his successor will surely have to promise more of the same. In contrast, the “more of the same” candidate in the 2016 election, Mar Roxas, was spectacularly unsuccessful. This may indicate that poverty reduction is more important to the electorate than straight paths.
One danger that I see emerging from the current fiscal policies is that we run the risk of a significant increase in inflation.
Congress will thoroughly examine the proposed 2017 budget.
Can we have the targeted 7 percent growth in the economy from a reduced budget? I believe we can. There is a considerable increase in the education budget which could be reduced by P100 billion without lowering current standards (which, admittedly, are not high).
The Senate ways and means committee should quantify the predicted budget deficit by examining the incomes from direct and indirect taxation. If the deficit is greater than three percent (P100 billion) of the proposed budget, then serious thought should be given to reduce some of relatively extravagant items.