Gov’t posts P14.1-B budget deficit in Jan amid drop in tax collection

The national government’s fiscal balance swung to a deficit in January 2021, on the back of further contraction in state revenues as the country still grapples with the COVID-19 crisis.

Data released by the Bureau of the Treasury (BTr) showed the national government ran a budget shortfall of P14.1 billion, a reversal from the P23-billion budget surplus registered in January 2020.

“The fiscal outturn resulted from a 1.18% year-on-year increase in government spending alongside an 11.51% contraction in revenue collection,” the Treasury said.

A budget deficit occurs when expenditures exceed revenue collections.

In an emailed commentary, Rizal Commercial Banking Corp. chief economist Michael Ricafort said the fiscal gap in January “fundamentally reflects the bigger year-on-year decline in government tax revenues amid the COVID-19 pandemic vis-a-vis modest year-on-year growth in government spending for the month.”

“That could still reflect relatively slower pace of economic recovery and could still indicate and consistent with the expected slight year-on-year contraction in the country's economic in first quarter of 2021, partly due to still higher base/denominator effects, thereby could still lead to higher government borrowings/debt stock to finance the wider budget deficit,” Ricafort said.

The National Economic Development Authority (NEDA) has admitted that the Philippines will continue to see a negative gross domestic product in the first three months of the year. 

Revenues

The government’s revenue collection in January slipped by 11.51% to P260.7 billion from P294.6 billion year-on-year “as government collecting agencies posted negative growth for the month.”

The Treasury said tax collection contributed the lion’s share of 89% or P237.2 billion of the total state revenues while non-tax collections comprised 11% or P28 billion.

The country’s main tax collection agency, Bureau of Internal Revenue (BIR), saw a 6.54% decline in its collection to P182.2 billion “due to the continued economic disruptions brought about by the health crisis.”

The Bureau of Customs (BOC) also saw a drop in its collections by 15.41% to P47.3 billion from P55.9 billion a year earlier.

The BTR, likewise, posted a 34.27% slide in its revenues to P18.7 billion as part of non-tax collections.

The Treasury attributed the decrease to a "high base" effect of dividend remittances from government-owned and control companies in January.

Other offices contributed P9.4 billion, down 24.97% from the same period in 2020.

“Additional moves to re-open the economy by further relaxing lockdowns/quarantine measures and allowing more businesses to operate and also at much higher capacity could help alleviate tax revenue collections in the coming months,” Ricafort said.

“However, this could be offset by the risk of relatively slower economic recovery amid the risk of higher new COVID-19 cases locally amid new coronavirus variants that are more contagious that could lead to risks of lockdowns and travel restrictions, thereby could still potentially result to reduced tax revenue collections and could lead to relatively wider budget deficits, with reduced government revenues vis-a-vis the need to increase government spending for various COVID-19 programs,” he noted.

Expenditures

The government’s spending in January increased modestly by 1.18% to P274.8 billion from P271.6 billion spending in January 2020.

“The uptick was moderated by lower interest payments, which declined by 23.43% or P14.4 billion year-on-year to P47 billion mainly due to the redemption of Global Bonds in 2020 and the settlement of premiums on reissued Treasury Bonds,” the BTr said.

The Treasury said that as a percentage of revenue and expenditures, interest payments for January accounted for 18.04% and 17.11% compared to the previous year’s levels of 20.84% and 22.61%, respectively.

Excluding interest payments, however, government spending actually grew by 8.37% to P227.8 billion from P210.2 billion in January 2020, “owing largely to higher allocation for local government units and disbursements by line agencies.

“Going forward, the timely approval of the P4.5 trillion 2021 national budget would help boost government spending especially on infrastructure spending for 2021, as an important pillar of the economic recovery program to pump-prime/stimulate the economy,” Ricafort said. -MDM, GMA News