Gov’t to boost spending this yr

The government is planning to increase its capital expenditures to 2.3 percent of gross domestic product (GDP) this year, marking the first time since 2002 that public capital spending has increased significantly.

The Department of Budget and Management (DBM) said yesterday that the increase in the value-added tax (VAT) rate from 10 percent to 12 percent would allow the government to increase its capital expenditures slowly over the next several years.

Budget Undersecretary Laura Pascua said capital expenditures under the 2005 budget was pegged at only P96.7 billion and would be increased to P133.2 billion this year.

Of the total amount, Pascua said P96.6 billion would be spent on infrastructure development, up from the budgeted amount of P64.3 billion in 2005.

At this level, infrastructure spending would increase from 1.2 percent of GDP in 2005 to 1.6 percent of GDP in 2006.

"That’s not a dramatic amount but it’s a start," Pascua said. "In contrast, our close neighbors and competitors are spending an average of five to six percent of GDP on infrastructure development."

According to Pascua, capital expenditures are the biggest casualty of the government’s fiscal deficit since public spending had to be reduced to the bare minimum that the government’s debt service expenses would allow.

As a result, public spending on capital had declined to less than two percent of GDP, one of the lowest in the region. Pascua said the ultimate objective is to increase total public capital spending to bring the country at par with its neighbors.

This year, Pascua said the Development Budget and Coordinating Committee (DBCC) had approved the allocation of the incremental VAT proceeds on debt servicing but added the allocation for capital expenditures would be increased over time until each would account for 50 percent of the estimated collection of P75 billion.

Pascua said P22.5 billion of the incremental revenues from the VAT would be spent on basic services and capital outlay, representing 30 percent of the total. By 2010, this would increase to 50 percent of the incremental VAT revenues.

Pascua said the capital expenditures would cover basic road projects of the Department of Public Works and Highways, the Department of Transportation and Communications and the Department of Agriculture.

"Now we can spend on road development, airports, ports and other basic services that have had to be set aside at the height of our fiscal deficit," Pascua said.