RP budget deficit may widen to P318 billion in 2010 - think tank

MANILA, Philippines - The government’s budget deficit may widen to as much as P318 billion this year, above the revised official estimate of P293 billion, New York-based think-tank GlobalSource said in its quarterly report on the Philippines.

The P318 billion, which is 3.8 percent of gross domestic product (GDP) is above the initial budget deficit estimate of Global Source which is P300 billion or 3.6 percent of GDP.

“Our own reading is a 3.8-percent fiscal deficit in 2010 which is no different from our estimate for 2009, when both structural and cyclical forces brough down revenues at a time when spending was accelerated to counter a downturn,” GlobalSource said in its report.

In revising its deficit forecast to 3.8 percent of GDP from 3.6 percent previously, GlobalSource took into account the government’s plan to spend more for infrastructure, debt service and social services.

”Although the economy looks set to recover this year, there remains some risk on the spending side with Congress reallocating P65 billion worth of debt service to infrastructure and social services spending, effectively bloating the budget since debt service is automatically appropriated. Legislators also inserted a special provision  prohibiting impoundment of funds which unless vetoed outright by the President will leave the country’s next leader little choice but to release the full budget. We still see structural weakness in revenues this year, as various legislative measures continue to take their toll on state collections,” GlobalSource said in the report authored by former Finance Undersecretary Romeo Bernardo and economist Margarita Gonzales.

GlobalSource also cited the revenue-eroding legislation approved by Congress as threats to state coffers.

According to estimates made by the Department of Finance (DOF), P60 to P65 billion are lost yearly because of these so-called revenue-eroding measures.

These measures include the lowering of the corporate income tax rate to 30 percent from 35 percent which is expected to translate to revenue losses of P15 to P20 billion yearly.

Another measure is the Minimum Wage Law which exempts minimum wage earners from income taxes. The government expects to incur losses of roughly P26 billion a year from this measure.

The National Tourism Act, meanwhile, is estimated to translate to P3 billion in foregone revenues.

Another measure, the imposition of franchise tax on power transmission in lieu of all national and local taxes, is expected to leave a dent on state coffers amounting to P9 billion a year.