RP may be unable to balance budget by 2013 - Goldman Sachs

MANILA, Philippines - The government is at risk of missing its goal to balance the budget by 2013 given its problematic tax effort, global investment bank Goldman Sachs said in a report on the Philippines.

Goldman said tax revenues have declined over the last three years, putting the balanced budget goal at risk.

“The government’s current plan to balance the budget by 2013 is becoming a challenge as tax revenues continue to be a low 13 percent of gross domestic product, showing a decline over the last three years,” Goldman Sachs said in its report.

Last year, the government’s tax effort slid to 12.8 percent or way below the programmed 14.4 percent for 2009 due to a host of reasons including rampant corruption, weakened economy and the implementation of so-called revenue-eroding measures.

The tax effort measures the government’s ability to increase tax collection that is commensurate with the growth of the economy.

The economy, as measured by gross domestic product, grew 0.9 percent in 2009 from the 3.8 percent recorded in 2008.

The 2009 tax ratio was also lower than the 14.13 percent recorded in 2008.

Goldman Sachs said that while the fiscal stimulus package has been helpful and has “supported growth” through the crisis, authorities should now revert to fiscal consolidation.

“The fiscal stimulus supported growth through the crisis but now fiscal consolidation is increasingly becoming the need of the hour and investors are looking for a clear and realistic consolidation roadmap,” it said.

Furthermore, Goldman Sachs said that after the May elections, the government should focus on fiscal consolidation by passing revenue measures that would rationalize fiscal incentives, raise excise taxes on alcohol and cigarettes and simplify the country’s net income taxation scheme.

Despite concerns on the fiscal consolidation, Goldman Sachs expects the Philippine economy to grow by 4.2 percent this year, above the official forecast of 2.6 percent to 3.6 percent and higher than the 0.9 percent recorded in 2009.

The interagency Development Budget Coordination Committee (DBCC), said is looking at moving the balanced budget goal to either 2015 or 2016 given the problematic revenues and higher expenditures.