Aquino admin addresses delicate fiscal situation

By Iris C. Gonzales, The Philippine Star

Posted at Dec 26 2010 05:11 AM | Updated as of Dec 26 2010 01:21 PM

MANILA, Philippines – The words of Finance Secretary Cesar Purisima captured the situation of the country’s fiscal sector when the Aquino administration stepped into office last June.

Purisima, albeit brimming with optimism and excitement when he stepped into office as the country’s Finance chief, said that the new administration is on an uphill climb on a treadmill that is already moving very fast.

This, Purisima said, means that the new economic team needs to work double time to address the situation.

As someone coming from the private sector and already with a previous experience as Finance chief, Purisima laid out grand plans as head of the department.

The aim, as has been announced repeatedly by President Benigno Aquino III, is to rid the government of corruption.

“Kung walang corrupt, walang mahirap.” Such is the consistent battle cry of the Aquino administration.

However, needless to say, things are easier said than done.

Corruption in the government’s two main revenue agencies – the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) – are so entrenched that no less than BIR Commissioner Kim Henares agreed that it would take a lifetime to eradicate corruption in government.

Nevertheless, she said that as head of the tax bureau, she does not and will not tolerate it in the agency.

Where things stand

The Aquino administration is faced with the daunting task of raising revenues without imposing new taxes.

It is faced with a widening budget gap that is projected to hit P325 billion this year or 3.9% of gross domestic product (GDP).

A budget deficit is a serious problem because this essentially means that the Philippines does not have enough funds for the different expenses such as infrastructure, public health and state-funded education.

As of end-October 2010, the budget gap had already reached P270.3 billion. This simply means that the government needs that much amount of money to be able to service its obligations to its citizens.

Despite the huge gap, Purisima hailed this as an achievement, saying that this was well within the program for the period of P292.8 billion and well within the full year target of P325 billion.

“We are confident that given our strong commitment to improve revenue collections and manage expenditures prudently, while at the same time working on expanding the tax base, we will achieve the full year deficit level of P325 billion,” Purisima said.

According to the latest data from the Department of Finance, revenue collections reached P993.2 billion for the period, up 7.3% from P925.4 billion a year ago.

Revenue collections by the BIR and BOC grew by 9.6% and 16.1%, respectively. Disbursements also increased to P1.3 trillion or 6% higher than the P1.2 trillion posted a year ago, Finance data also showed.

In October alone, the National Government posted a budget deficit of P10.5 billion which was significantly lower than the programmed P19.1 billion for the month. Fiscal authorities attributed this to the 15.1% increase in revenue collections.

Data show that both cash and non-cash revenue collections for the month increased by 7% and 2,421.3%, respectively.

Furthermore, the Finance department said that last month’s deficit is 63.2% lower than the P28.5-billion deficit posted in the same period last year.

“By collection agency, the BIR continues to outperform target as it posted revenue collections of P63.6 billion exceeding its P62.6 billion monthly target. Both the Regional Offices and the Large Taxpayers Service contributed significantly to the bureau’s revenue performance. The regional offices collectively accounted for P26.8 billion in revenues while the Large Taxpayers Service contributed P35.1 billion. The better than target collection performance can be attributed to the revenue collection officers’ determination to improve tax collections in their revenue districts through the agency’s revenue enhancement programs to improve taxpayer awareness and compliance as well as the Run-After-Tax-Evaders (RATE) program.

“Revenue collections by the Bureau of Customs (BOC), on the other hand, reached P22.6 billion or 16.8% below the P27.1 billion target on account of the zero duties on oil and motor vehicle imports from Japan, per the Japan-Philippines Economic Partnership Agreement (JPEPA) as well as the appreciation of the peso against the dollar,” the Finance department said.

On the expenditure side, the Department of Budget and Management (DBM) tightened on spending.

Data show that disbursements reached P109 billion or 12.7% below the P124.9 billion that was programmed as both operating and interest payments were lower than programmed, the Finance department said.

Arresting the fiscal situation

Given this situation, the Aquino administration is indeed racing against time.

Since taking over last June, both the heads of the BIR and the BOC have been filing before the Department of Justice (DOJ) tax evasion and smuggling charges once a week per agency.

The two agencies have filed cases against individual and corporate taxpayers, including officials of the Macapagal-Arroyo administration.

These activities are meant to convey to the public the message that the current administration is serious in its efforts to go after tax evaders and smugglers, Purisima said.

However, the filing of these cases has yet to translate into actual increases in revenues.

The BIR also went aggressive with its ‘Oplan Kandado’ program, under which the agency padlocks establishments whose owners do not pay the right amount of taxes.

The BOC has implemented its own set of reforms such as a more aggressive anti-smuggling campaign and its compulsory acquisition plan wherein the agency would be buying the smuggled goods it has seized for reselling to the private sector.

Debt liability management

On the debt liability management side, the National Government also embarked on some new programs meant to lengthen the government’s debt maturity profile.

Last September, the Philippines issued at least $2.9 billion of 2021 and 2034 dollar bonds and sold approximately $200 million in new debt. It also raised $1 billion through the sale of 10-year peso-denominated global bonds.

Moreover, as part of its debt liability program, the government also issued P200 billion in new 2020 and 2035 bonds in a peso-denominated bond swap.

Conclusion

When and how these initiatives would actually eradicate the government’s budget gap is still anybody’s guess. What is clear is that the fiscal situation remains fragile and that the government needs all the revenues it can get to be able to fulfill its obligation to its citizens, which is to provide adequate social services.

However, this will not be possible if corruption remains rampant within the BIR and the BOC, the government’s main revenue offices.