Dr. Johnny Noe E. Ravalo, chief economist of the Bankers Association of the Philippines (BAP), said the country’s project budget deficit of P130 billion is nothing to crow about since it is to be expected.
"The issue of the budget deficit is not whether it is P62.5 billion or P130 billion by the end of 2000. The issue here is what is causing it. And that is a structural issue. Our ability to generate tax revenues does not seem to be correlated in any way with reported economic growth," Ravalo said.
As an example, the economist explained that when an individual is given a salary increase, it automatically means paying more taxes. He took note that taxes are not inflation-adjusted but statistically nominal. If you get a 10-percent salary adjustment that would likely be devoured by taxes.
"Yet, we know for a fact that Philippine income is always under reported. So, at the very least four percent real growth, then you have to re-flate it back in nominal terms. So you are really looking at a 10-percent income increase on average. Yet your tax revenue increase year-in year-out is not 10 percent due to under reporting or evasion."
Ravalo said government should restructure the system to ensure that real taxation becomes part and parcel of income growth. The country, according to studies made by the European countries, has a large underground economy, with some estimates saying it accounts for up to 50 percent of the country’s total economy.
Government in fact had considered stricter tax measure for professionals like doctors and lawyers. Still another income group that flourishes in the underground economy are sari-sari stores, barber shops, buy-and-sell entrepreneurs, and vendors.
"It is the same structural misalignment that occurs resulting in the deficit from one administration to another," Ravalo pointed out.
According to the BAP chief economist, government already knew that they would surpass deficit targets as early as the first quarter of the year.
"As far back as the first quarter of 2000, our projections were already at P114 billion deficit at the time when the country was still way below the initial target of P62.5 billion agreed upon with the International Monetary Fund (IMF)," he said.
"But the issue of budget deficit is over-blown. A country will never go bankrupt since it can print more money or borrow more. I am not too worried of the (projected P130 billion) deficit," Ravalo pointed out.
"We have always been in a deficit since the second World War, yet the economy has not shrunk in a hole somewhere in the ground. There is still a country known as the Republic of the Philippines although it is not as attractive or popular as most of our Asian neighbors," he added.