The government has raised its budget deficit ceiling for 2009 to P177.2 billion or 2.2 percent of the country's domestic economic output due mainly to an expected decrease in tax take-up, Finance Secretary Margarito Teves said Wednesday.
The new figure is higher than the government's previous revised target of P102 billion or 1.2 percent of GDP.
With tax collections unlikely to improve because of slower inflation, Teves said the deficit would allow government to spend more for infrastructure and social services in order to spur economic growth this year.
"The unprecedented challenges confronting us require extraordinary strength. We have to be tough to overcome these serious threats to fiscal and economic stability," he noted.
"We need to spend more," he stressed.
Teves said this year's projected budget shortfall remains lower than the average deficit of 4.3 percent of GDP in other Southeast Asian countries like Thailand, Singapore and Malaysia.
Last year, the Philippines recorded a budget deficit of P68.1 billion or 0.9 percent of GDP, an improvement from the programmed deficit of P75 billion or 1 percent of GDP.
This snapped a three-year steady decline in the deficit since 2003.
Wider 2009 shortfall
Teves indicated the possibility of further lifting the deficit ceiling for 2009, citing the dynamics of government spending.
"The 2.2 percent of GDP is our target for the medium term. We may need to increase spending... we don't know yet," he told reporters.
But he said they remain mindful of the country's debt to GDP ratio, which is currently at 56 percent, much higher than the average of 36-38 percent in Asia.
"Additional deficit will mean higher interest payments and could also threaten our peso to dollar exchange rate, which in turn, could affect our macroeconomic conditions," said Teves.
Since early this year, economic managers have been been hinting of a wider budget shortfall--with estimates ranging from P140 billion to P160 billion--as initial reports of collected taxes, the main source of government's revenue, could be lower than expected.
On Tuesday, the Bureau of Internal Revenue (BIR) confirmed that it missed its 2008 target by a whopping P67 billion, a new record high.
BIR commissioner Sixto Esquivias said the tax agency managed to collect only P778 billion of the P845 billion programmed collection for last year. He blamed the slackening economy as well as the tax relief package for minimum wage earners for missing the BIR target in 2008.
BIR's tax collections account for about three-fourths of the government's total revenues, which in turn, fund the government's social services and pay the salaries of public officials, among others.
Teves has called on the private sector to help the government achieve its target this year by "paying the appropriate taxes."
He also urged the Congress to speed up the passage of measures particularly on the rationalization of fiscal incentives and restructuring of excise tax on sin products to beef up the government's revenue generation program.
No balanced budget
Meanwhile, Teves said it would be extremely difficult to balance the budget next year because of the need to boost spending amid adverse external economic conditions.
Analysts and investors have been watching the Philippines' ability to put its fiscal house in order by achieving a zero budget deficit.
For his part, socioeconomic planning secretary Ralph Recto said the government has already abandoned its commitment to balance the budget by 2010 as stated under the Medium Term Philippine Development Plan.
"The budget will no longer be balanced by 2010," he said.
To cushion the impact of the global economic slowdown on the local economy, especially on jobs, the government has proposed a P330 billion stimulus package. Bulk of that amount depends on government's own revenues and it will have to increase its borrowings from local and international investors and foreign lenders to plug any deficit.
The stimulus package was designed to provide social services and fast-track infrastructure projects, generate jobs and stoke economic growth.
Recto said the local economy could grow from 3.7-4.4 percent in 2009, down from the government's original forecast range of 3.7-4.7 percent.
He said agriculture, which accounts for about half of domestic economic activity, should grow by 3-3.6 percent. Industry should expand by 3.9-4.7 percent, and services by 3.8-4.5 percent.
According to Recto, the major challenges the Philippines would be facing this year include the possible contraction in exports by 6-8 percent and more layoffs of Filipino workers overseas, who send remittances which fuel domestic consumption.
The central bank said Wednesday that remittance volume will likely stay flat in 2009 at around last year's level of $16.4 billion. Remittances, which account for about 10 percent of the economy, registered double digit growth rates in previous years.