Balanced budget achievable, says BTr

No matter how well the Bureau of Treasury (BTr) can outperform itself, much less the rest of the government revenue-generating agencies, National Treasurer Omar T. Cruz knows that it is not enough to attain a balanced budget by 2008.

No matter how many times the BTr is named Best Borrower of the Year by The Asset or the most prolific sovereign issuer in the region, it can only contribute a portion of the needed revenues to attain the 2008 target.

But it is also clear to Cruz that to hit the goal, the Bureau of Customs and the Bureau of Internal Revenue (BIR) must outperform and overachieve.

The poor collection performances of the BIR and the BOC in the previous years are a given, but there are no excuses.

Looking at medium term effort, the yield-on-year momentum was positive. Last year, the BIR and the BOC collection efforts grew 14 percent and 15 percent, as against 10 percent and around 14 percent, respectively, in 2004.

"That is a build-up in momentum. We knew the targets were a bit high since the new tax base (two percent additional) was still absent. We however could deliver at the BTr, although that is just gravy," the national treasurer said.

Revenue collections by end January 2004 was over P53 billion while collections in the same period in 2005 hit P63.3 billion.

The BIR reported collections of P36.5 billion in the 2004 period growing by 15 percent to P42 bilion in 2005. The customs bureau reported collections of P9.5 billion in 2004 expanding by 10 percent to P10.5 billion the following year.

To save the lot, the BTr expanded its revenues by a whopping 121 percent, or from P4 billion to P9 billion.

But with the new tax base, it is 24 to 26 percent over last year’s internal revenue collections, and at least 32- to 34 percent over the customs bureau collections.

"In 2005, we beat the P180 billion fiscal deficit target, when it turned out at P146.5 billion. Instead of the deficit accounting for 3.4 percent of gross domestic product (GDP), we ended up with 2.7 percent of GDP, or 0.7 percent ahead of the program. This year, the goal is 2.1 percent of GDP at P125 billion. Or we can really go for one percent of GDP per year. And that is achievable," Cruz dared.

But what is crucial is that all revenue collection targets are met. Then all expenditure goals are fulfilled like infrastructure and social services.

"If we fail to collect, if we fail to prosecute tax evaders, if we fail to prosecute smugglers, let us forget all about it. If you will not be firm, lets forget it!"

Overachieving revenue collections targets year in, and year out, would mean less borrowings, better programmed borrowings and debt servicing, more cash for development, more cash for social services, and less competition for funds betweeen government and private sector.

Fewer borrowing is, in fact, de facto pre-paying of debts.

"When you are ahead of the program, your savings is not in the form of cash, your savings are in the form of less borrowings. Remember that we are still in a deficit. And there are contractual obligations. Chances are the lender had everything planned ahead and had already estimates to the earnings of their lendings. If you pre-pay, chances are they will slap penalties or fines to ensure their targeted earnings, just like pre-terminating time deposits with commerical banks. That is how the markets operates," Cruz stressed.

The key is reviewing the maturity profile of all debts, smoothen the maturities, look for the possible buy-backs, and pre-invest areas.

"In short, cleaning the curve by extending our maturities and at the same time, increase the liquidity,"the national treasurer said."If we fix the fiscal house, gone are the days for huge and scattered borrowings. I will gap myself with the view that interest rates are coming down. I will not pre-fund at high cost, i will want to pre-fund at lower cost."

Meanwhile, the BTr already factored in any interest rate hikes in the first half of the year.

It hit the market early. It also tightened the maturity profile of its ROPs. "I do not want to get exposed to (US Fed chief) Greenspan, or to a London bombing as it is immediately tightened. i avoid that."

The maturity spreads of its 5-year dropped from 7.10 percent in January 2004 to 6.54 percent in the same period this year. The 10-year tightened from 8.5 percent to 7.34, and its 25-year from 9.56 percent to 7.88.

"I am a capital markets/treasury guy. I know that this market is unforgiving, thus I have to be unforgiving. I must be in control," Cruz pointed out.