Next admin must address pandemic revenue losses, debt rise —DOF’s Dominguez
The Department of Finance (DOF) is pursuing a fiscal consolidation plan aimed at minimizing the long-term economic scarring resulting from the COVID-19 pandemic-induced recession.
However, with less than a year before the Duterte administration steps down, the fiscal consolidation plan is for the next administration to implement.
Fiscal consolidation refers to government policies intended to reduce deficits and accumulation of debt.
“Tax revenue losses from the pandemic-induced economic slump, the rise in debt to fund our COVID-19 response, the looming revenue impact of our economic recovery measures, and lower spending efficiency as a result of the Supreme Court decision to expand the share of LGUs (local government units) from the NTA (National Tax Allotment) must be adequately addressed by the next administration’s economic team,” said Finance Secretary Carlos Dominguez III.
As a result of the pandemic, the national government incurred hefty tax revenue losses amounting to P785.64 billion or 4.4% of gross domestic product (GDP) in 2020, according to initial estimates by the DOF.
Before COVID-19 struck at the onset of last year, tax revenues were expected to increase by 16.2% in 2020, the Finance department said.
Likewise, foregone revenues are expected to be even larger in the coming years as the impact of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) and Financial Institutions Strategic Transfer (FIST) which are both crucial to a quick economic recovery take effect.
The DOF said that from 2021 to 2024, revenue losses are projected to reach around P1 trillion on average every year because of tax revenue losses from the pandemic and the foregone revenues from CREATE and FIST.
Meanwhile, the Finance department said COVID-19 related loans for the pandemic response and budgetary support to finance the deficit have also translated into increased financing cost for the government.
The total financial cost of COVID-19 related loans now amount to $28.91 billion or P1.47 trillion, it said.
DOF data shows that outstanding balance or the principal value of COVID-19 loans is $22.58 billion or P1.15 trillion, while the projected amount of interest payments until maturity is $6.32 billion or P320.85 billion.
These loans will mature between 2024 and 2060, it said.
On the other hand, the Supreme Court’s decision in 2018 to affirm that the LGUs’ “just share” of revenues includes all national government taxes, instead of being limited only to Bureau of Internal Revenue (BIR) collections, “will also have implications on the country’s economic growth as it takes effect in 2022.”
This SC ruling, which stemmed from the case filed by then-governors Hermilando Mandanas of Batangas and Enrique Garcia of Bataan, significantly increases the base for computing the NTA, from which the annual allocation for local governments is based.
“Based on our estimates, the implementation of the Supreme Court’s 2018 ruling will yield lower economic growth because local governments spend less efficiently,” said Dominguez.
Spending efficiency is defined as the share of productive spending to total spending.
Productive spending is expenditure that goes back to the economy, generates multiplier effects, creates jobs, stimulates demand and improves the quality of life.
DOF estimates found that implementing the High Tribunal’s 2018 decision will yield 3% lower economic growth, because the higher LGU allocation will be subject to a lower spending efficiency.
It said that the national government’s spending is more than two times as efficient as that of local governments in general.—AOL, GMA News