Budget gap could return to pre-crisis level by 2025
THE BUDGETARY DEFICIT could only return to its pre-pandemic level by 2025 under the governmentis lying Fiscale consolidation plan, according to initial estimates from the finance department.
Gil S. Beltran, Undersecretary and Chief Economist of the Ministry of Finance (DoF), said the national government could reduce its budget deficit to the ceiling of 3.2% of gross domestic product (GDP) by 2025 if the remaining tax bills under the comprehensive tax reform program will be passed.
“Our estimates show that if we can push through all of these measures, we are now in 2021, by 2025 we will be back to our usual deficit. [in] 2019… We can even do better if the economy rebounds quickly, ”Beltran told reporters in an interview last week.
In a Viber message, Deputy Finance Secretary Maria Teresa S. Habitan said the DoF hopes that the last two bills, the Real Estate Valuation and Valuation Reform Act and the taxation of passive income and financial intermediaries, will be enacted by the end of 2021.
The two bills are part of the joint legislative program of the Consultative Council for Legislative-Executive Development (LEDAC) which is expected to be adopted by the end of the year.
Both measures were approved by the House but are still pending at the Senate committee level.
The Real Estate Valuation and Valuation Reform Bill aims to establish a single valuation system for local government units to improve their collections, while the taxation of passive income and intermediaries financial instruments will help to simplify the tax structure of financial instruments.
While the FiThe scal consolidation plan is an “evolving” plan and always subject to revisions, Finance Secretary Carlos G. Dominguez III said in the same interview that the government can drop its debt.Ficit either by reducing the budget or by increasing revenues.
“Perhaps one is to reduce our expenses like Indonesia has done… The other is to increase our income. But I’m telling you it’s going to be very difficult; this period of fiscal consolidation is going to be quite difficult. But what’s good for us is that interest rates are low, ”Dominguez said.
The government ran a budget deficit of 1.371 trillion pesos last year. This is equivalent to 7.6% of GDP compared to 3.4% of GDP in 2019.
The State is in budget deficit because it spends more than the income it generates. He capped the fiscal gap at the internationally accepted threshold of 3.2 percent before the crisis hit, but the economics team adjusted it to account for a deficit equivalent to 9.3 percent of GDP this year in a context of high public spending and declining tax revenues.
As part of the medium-term fiscal program adopted in May, the fiscal gap is expected to be reduced to 7.5% of GDP in 2022, 6.3% in 2023 and 5.3% in 2024.
On debt levels, Mr Beltran said they expect the outstanding debt to still hover around 60% of GDP and return to the pre-crisis debt ratio by now. 2025, roughly the same timeline for theFicit.
“It could be sooner if the next administration will be quick, if they are as quick as this administration, then we can even do it in 2024,” Beltran said.
“We expect the economy to soar, as soon as the blockages are lifted because the factors of production are there, they just can’t budge. Once you remove the blocks, checkpoints and restrictions, the economy will explode significantly.Fiment, ”he added.
The national government debt stock reached 11.2 trillion pesos at the end of June, representing 60.4% of GDP, higher than the debt-to-GDP ratio of 54.6% in 2020 and well above the level before the pandemic by 39.6% in 2019.
The economics team expects the debt ratio to reach 59.1% this year, peaking at 60.8% in 2022 before slowly declining to 60.7% in 2023 and 59.7% in 2024, the chief financial officer told reporters last month.
Mr Dominguez said the DoF team led by Mr Beltran and Ms Habitan started working on the Fiscale consolidation plan with the Fifirst draft submitted a week ago.
“The Fiscal consolidation plan is an ongoing project that we started about a month and a half ago. As it becomes clearer to us, maybe once a month, we will provide more and more details about this. Fiscale consolidation plan, ”he said.
“We have to see how the plan evolves, as I said, depends on the duration of this pandemic. Fortunately, we are in a relatively good position, not in an absolutely good position, a relatively good position, ”he added.
Asian Institute of Management economist John Paolo R. Rivera said policymakers should consider the “intended and unintended consequences” of a contraction Fiscalar policy on the economy, and how monetary authorities will react to it.
Raising taxes as part of the plan will be a challenge for the government, according to Rivera because of its economic, social and political implications in times of crisis.
“The tax increase will lead toFiheavily load all those who have already been burdened by the ongoing pandemic and this could be difficult to make people understand this given the many news regarding the alleged non-use and misappropriation of public funds. Plus, given the country’s political landscape and the fact that an election is also coming up, shaking the boat could be the last thing politicians want to do, ”he said.
“Rather than shifting the burden to the public through taxation, the government needs to generate revenue through other means, saving money and reducing waste,” he added.
He said the plan should also include legislation on thffirational use of public funds to revive the economy. – Beatrice M. Laforga