S&P, Fitch to next admin: Exercise fiscal restraint

MANILA, Philippines - Credit rating agencies Standard and Poor’s (S&P) and Fitch Ratings want the next administration to be fully committed to plugging the government’s budget deficit and putting the country back to the direction of fiscal consolidation.

Finance Secretary Margarito Teves, who recently met with representatives of the two debt watchers, said the rating agencies have agreed that revenue-eroding measures approved by Congress should be reversed or offset by adjustments in other areas.

“All the international credit rating agencies have a consensus on things to be done. They’re concerned about revenue-eroding measures and they’re concerned whether we will go back to the fiscal consolidation path as soon as possible,” Teves said.

Teves met with officials of S&P and Fitch last April 5 and April 20, respectively.

“I think they would like to see some adjustments in the next administration. I think what they are interested to see is a commitment on the part of the new administration that they will go back to the root of fiscal consolidation,” Teves said.

Teves said those commitments will have to be manifested by additional revenues, through a combination of revenue enhancement measures, improvement in tax collection efficiency and new measures.

Under the government’s fiscal consolidation plan, it would wipe out the budget deficit by 2013 but this schedule is also under review following the widening budget gap caused by a host of factors including the so-called revenue-eroding measures.

These measures include the bill seeking the creation of special economic zones in Bataan, Ilocos Sur, Cebu, Davao and Samal (revenue loss of P15 billion); the bill reducing the National Government’s share from royalties from indigenous energy sources to effect a reduction in electricity rates (revenue loss of P14.9 billion); the bill seeking to reimpose franchise tax on power distribution (revenue loss of P7.1 billion) and the bill seeking to exempt from income and other taxes the so-called Real Estate Investment Trust (P5.3 billion).

Other “negative revenue measures” include the proposal to exempt hybrid vehicles from excise tax and VAT which is expected to translate to losses of P2.7 billion, the abolition of premium tax on life insurance policies which has an estimated revenue loss of P1.8 billion and the abolition of documentary stamp tax (DST) on dollar remittances from overseas Filipino workers which has a projected loss of P1 billion.

The proposal to provide incentives to the Home Development Mutual Fund or PAG-IBIG Fund is expected to translate to losses of P900 million while the abolition of DST on life insurance policies is expected to translate to revenue losses of P800 million.