RP has third biggest budget deficit in S Asia

The Philippines has the third biggest budget deficit in South Asia in relation to total domestic production, the Department of Finance (DOF) reported yesterday.

Government officials said this situation could aggravate the country’s total debt burden unless new taxes are imposed to increase revenues.

Based on DOF report, the National Government’s (NG) budget deficit as of last year accounted for 4.6 percent of gross domestic product (GDP), second only to Vietnam whose deficit was 4.8 percent of its GDP. Malaysia ranks first whose deficit was 5.8 percent of GDP.

In contrast, countries like Thailand and Singapore were in surplus and those in deficit have managed to keep their proportions well under control by sustaining GDP growth over the years.

Finance Secretary Juanita Amatong said yesterday that Indonesia, for example, had successfully contained its deficit to 2.1 percent of its GDP while China kept its fiscal gap at 2.3 percent. South Korea was even more effective, keeping its deficit at 1.7 percent of its GDP.

"As long as we are generating this kind of deficit, we will have to continue borrowing and we are approaching that point where it will no longer be viable anymore," Amatong warned.

The only option, she said, was to raise taxes since putting in administrative measures and plugging the holes in the existing tax regime would not be enough.

The Arroyo administration had presented Congress with eight major tax measures, a package that was largely accepted by the business community as inevitable.

During yesterday’s membership meeting of the Management Association of the Philippines (MAP), business leaders said there was little choice now but to impose new taxes.

According to former Finance Undersecretary Romeo Bernardo who is now senior partner at Lazaro Bernardo Tiu & Associates, the government’s fiscal woes needed to be addressed immediately.

"Something substantial has to be done now or this problem will acquire a life of its own and it will be too late to do anything," Bernardo said.

Bernardo said the government should pass new tax measures that would yield revenues while being easy to implement.

The business sector is supportive of the two-step expanded value added tax, the indexation of sin taxes, lifting the exemption of petroleum products from excise taxes, creation of performance-based revenue agencies and the increase in administrative measures to plug the holes in the existing tax regime.

Bernardo said government could also implement "pointed tax measures" such as the proposed telecom tax but he said such measures should be neutral and carry a "clear economic objective".