Finance chief says 2008 balanced budget goal stays

The government’s goal of balancing the national budget by 2008 remains, Finance Secretary Margarito B. Teves said Satruday, a day after President Gloria Macapagal Arroyo declared openness to move back the zero-deficit target to 2010 to allow for more spending. In a statement, the President’s chief economic manager said the government also remains committed to narrowing the budget gap to P63 billion next year or less than 1% of gross domestic product, from the expected P125 billion or 2.1% of economic output this year. "The government’s policy on reducing the deficit and balancing the budget has not changed. We remain committed to the 2007 deficit reduction target of P63 billion and to balancing the budget by end-2008," the Cabinet official said. Mr. Teves, however, clarified that the balanced budget goal won’t necessarily constrict spending on infrastructure and social services. In fact, he added, there will be money for this purpose, such as proceeds from the new value-added tax (VAT) law as well as "improved tax administration and collection efficiency." He assured that funds would be raised to spend for various projects needed to spur economic activity. "We remain on track with our efforts to raise the additional revenues we need to cut the deficit and invest in critical infrastructure and basic services, such as health and education," Mr. Teves said. There have been repeated suggestions to postpone the zero-deficit goal to 2010, and proponents argue that more infrastructure spending is needed to boost the domestic economy. Mr. Teves also broached the idea of posting a balanced budget for the years 2009 and 2010 instead of incurring surpluses after 2008 as earlier planned, with the money channeled to productive expenditures. Albay Rep. Jose Ma. Clemente S. Salceda, who advises the President on economic matters, is also suggesting that the 2007 target budget gap be widened to P90 billion from P63 billion to allow for more spending. The target will surely be breached anyway, he argued. A proponent of the 2010 balanced budget, Budget Secretary Rolando G. Andaya Jr., seems to have reversed his position, saying in a separate statement yesterday that the 2007 budget being crafted by the government is "en route to a balanced budget by 2008." Mr. Andaya, a member of the economic team, yesterday said that next year’s P1.136 trillion budget proposal is consistent with the balanced budget goal in 2008. "The 2007 budget that the Budget department and the DBCC [Development Budget Coordinating Committee] is crafting right now is still consistent with the original target of a balanced budget two years from now," he said in a statement. He also said the 2007 budget is being readied for submission to Congress in fulfillment of the President’s constitutional duty of submitting next year’s national budget within 30 days after she delivers the State of the Nation Address every fourth Monday of July. Mr. Andaya has suggested a reexamination of the 2008 balanced budget goal to give the government more room to spend on infrastructure and eduction. The Arroyo administration originally wanted a balanced budget by 2010. But during the time of Finance Secretary Cesar A.V. Purisima, Mr. Teves’ predecessor, officials decided to move the target two years ahead of schedule. This was after the passage of key tax measures such as higher excise taxes on "sin" products such as alcohol and tobacco, the imposition of VAT on power and petroleum, and the increase in the national sales tax rate to 12% from 10%. The deputy managing director of the International Monetary Fund (IMF), meanwhile, praised the Arroyo administration for pursuing fiscal reforms. Takatoshi Kato, who was in Manila to solicit views for the multilateral agency’s new medium-term strategy, said he was "impressed" with economic reforms in the Philippines. "In particular, the authorities are to be commended for accelerating the pace of fiscal adjustment, including through the landmark VAT reform, and setting the country’s public debt-to-GDP ratio on a downward trend," Mr. Kato said in a statement Thursday night. For her part, President Arroyo may have announced her preference for a balanced budget in 2010 yet, but she is confident this target could be achieved earlier given the government’s recent fiscal performance, Malacañang yesterday said. Press Secretary Ignacio R. Bunye did not say, however, on what year Mrs. Arroyo expects the budget deficit brought down to zero although her economic managers have said they want this achieved in 2008. "During her inaugural address, President Gloria Macapagal Arroyo announced that one of her goals is to balance the budget before her terms ends by 2010. But she is now confident that this could be achieved very much ahead of target," Mr. Bunye said. "The overall trend of the government debt is declining, fiscal reform is working and we have growing fiscal stability," he added. Mrs. Arroyo, in two occasions this week, indicated she prefers to see the budget balanced by 2010 and not 2008 as envisioned in the Medium-Term Philippine Development Plan for 2004-2010. Postponing the balanced budget goal to 2010 instead of 2008, proponents have said, will allow the government to spend more on infrastructure and social services, particularly education. But Senator Ralph G. Recto, Senate ways and means committee chairman, said the President should stick to the 2008 target for a balanced budget, as delaying this will cause more costs than benefits to the economy. He said in a phone interview yesterday that revenue measures passed by Congress in the last two years were aimed at closing the budget deficit and mitigating a looming fiscal crisis. He recalled that balancing the budget by 2008 was "kasama sa usapan [part of the deal]" between Malacañang and Congress on the approval of revenue measures. The largest of the said revenue measures is the expanded value-added tax (E-VAT), which is expected to provide additional revenues of around P100 billion a year. The measure, seen as unpopular by various camps, lifted the exemption on electricity and petroleum starting November 1 last year and increased the tax rate to 12% last February 1 from the previous 10%. Two other measures have been approved and signed into law: revisions to excise tax rates of alcohol and tobacco products, and the Lateral Attrition Act. One more measure -- the proposed rationalization of fiscal incentives -- is still pending with Congress. While the claim of government is that it needs to spend more funds for infrastructure projects, Mr. Recto however said "the government’s absorptive capacity to spend is low anyway." He said this means the government itself is finding it hard to source and release funds to spend for projects. Absorptive capacity to spend means the capability of the government or its agencies either to provide counterpart funds for overseas development assistance projects or to repay debts it incurred for infrastructure projects. Furthermore, "first of all, how can we talk about delaying the balanced budget if we don’t have a budget this year?" he said. He further said the international community--particularly creditors--will not look positively on the Philippines if the government decides to delay the fiscal balance to 2010. This, he said, will result in higher interest and exchange rates, and eventually to less confidence in the Philippine economy. On the other hand, Senate Minority Leader Aquilino Q. Pimentel, Jr. is open to delaying the fiscal balance, due to the "far-from-ideal" situation of the Philippines. "If it’s a choice between infrastructure spending and debt repayment, I choose the former. In the meantime, let’s negotiate for better debt terms," he said. -Felipe F. Salvosa II, Judy T. Gulane and Francis Y. Capistrano/BusinessWorld