While the various stimulus proposals in Congress to support the economy’s recovery from the coronavirus pandemic are “well-intentioned,” these can be fiscally unsustainable, according to Carlos Dominguez, Department of Finance (DOF) secretary.
Dominguez said during the Sulong Pilipinas virtual forum yesterday these should conform to the constitutional parameters that determine how these measures should be funded.
“The Constitution specifically requires the certification of excess funds and new revenue sources to support the passage of any supplemental budget. In running a business or a company, we know that borrowings or loans are not revenues. We appreciate the wisdom behind the Constitutional provision for in the absence of additional revenues or income, we jeopardize our fiscal sustainability,” Dominguez said.
Article 6, Section 25 (4) of the Philippine Constitution states that: “A special appropriations bill shall specify the purpose for which it is intended, and shall be supported by funds actually available as certified by the national treasurer, or to be raised by a corresponding revenue proposed therein.”
Dominguez also said the fiscal deficit for the year is projected to be around 8.1 percent of gross domestic product (GDP), but the economic team is “willing to push it up to 9 percent.”
“That is how much additional we can fund, between 8.1 percent and 9 percent (of GDP).
And currently, that is more or less P170 or P180 billion. But we cannot afford P1.3 trillion.
That is just very simple,” he said, referring to the value of the economic stimulus package approved by the House.
Dominguez also pointed out the current loans made are used to fund the current budget. “We are not exceeding our P4.1 trillion budget. Now, since our revenues are much lower than expected, we borrowed to support the current budget. However, we are not allowed to borrow for supplemental budget by the Constitution,” Dominguez said.
Asked if the legislators have been made aware of the huge deficit to be incurred in case this package pushes through, he said they are aware. “The Senate has already downscaled their proposal. But you know their proposal is so far from the House proposal. The House Bill is P1.3 trillion and the Senate Bill, P140 billion. So that is like a little over 10 percent only on what the House Bill is. So, we have to have some kind of reconciliation of the bills before we really can move forward,” Dominguez said.
The finance chief raised some key concerns and said his comments were already shared with the proponents. “For instance, the decisions for the provision of credit should not only be coursed through, but be determined and managed solely by government financial institutions, which possess the expertise on such functions rather than the various executive agencies with different mandates,” Dominguez said.
“We support cash-for-work and propose that this be redirected towards pressing needs related to managing the pandemic, such as the hiring of contact tracers,” he added.
Dominguez also recommends wage subsidies that are fiscally viable, thus beneficiaries should be from areas that remain under the enhanced community quarantine and distribution should be done via digital payout technologies.
“The fundamental decision is that, it is not on the size of the stimulus bill, but on the level of the fiscal deficit. We have determined that in order to have a sustainable fiscal deficit and to convince people who invest in our economy from the outside and in the domestic economy… our fiscal deficit should not exceed the average of the fiscal deficits of our neighbors and our peers. So, if we are too high on one hand, or too low on one end it doesn’t do any good. If we are right about the middle of the fiscal deficit of our rating peers and our neighbors. I think we will be in a safe place,” Dominguez said.
He previously said for as long as the deficit-to-GDP ratio will not exceed 9 percent, the ratio will remain in the median of comparable countries in Asean and in East Asia; among peers with similar credit ratings; and among other emerging market economies.
Meanwhile, on the need to approve the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) bill, Dominguez noted that the benefits under this measure get pushed back with each passing day that Congress delays its passage.
Had the bill been approved before the sine die adjournment of Congress last week, he said the business sector would be enjoying a corporate income tax (CIT) cut of 5 percentage points starting next month. Asked if the DOF will push for retroactive implementation of the CIT cut from July should Congress pass the measure in the next few months: “Yes, because that is what we calculated.”
“The basic CREATE bill as filed right now will release P43 billion in reduced income tax for the rest of this year alone, and that means to say that is a stimulus program because the money is going to be left with the private sector,” Dominguez said.
During the same briefing, the finance chief reported that excise tax collections from tobacco and alcohol products fell by 39 percent in the first five months of the year, amounting to P63.1 billion as against the P102.71 billion in January to May 2019.
In May alone, collection of sin taxes was P11.91 billion, as compared to P20.87 billion in 2019, or a drop of 43 percent. “That again is the result of the lockdown,” Dominguez said.
